What are the two main penalties?
The IRS charges separate penalties for filing late and for paying late. Filing late costs far more, which is why filing on time, even when you cannot pay in full, is almost always the right move.
| Failure to file | Failure to pay | |
|---|---|---|
| Rate | 5% of unpaid tax per month or part of a month | 0.5% of unpaid tax per month or part of a month |
| Maximum | 25% | 25% |
| Runs from | The due date, including extensions | The original due date. Extensions do not help |
| When both apply in a month | Reduced by the failure-to-pay amount, so 4.5% | 0.5% |
| Other rates | A minimum applies after 60 days | 0.25% a month during an installment agreement, 1% after a notice of intent to levy |
What is the minimum late filing penalty?
For an income tax return required to be filed in 2026 that is more than 60 days late, the late filing penalty is at least $525 or 100% of the tax owed on the return, whichever is less. The figure is adjusted for inflation each year: for returns required to be filed in 2027 it rises to $535. If no tax is owed, there is no failure-to-file penalty on an individual or C corporation income tax return.
What does a late return actually cost?
A sole proprietor owes $10,000 on a 2025 return due April 15, 2026, and files and pays on August 20, 2026, five months late with no extension. The late filing penalty is 4.5% a month for five months, $2,250, and the late payment penalty is 0.5% a month for five months, $250. Interest runs on the tax and on the penalties. Had the return been filed on time and only the payment been late, the penalty would have been $250 plus interest.
How are partnership and S corporation returns penalized?
Differently. Because these entities usually owe no tax themselves, their late filing penalty is a flat amount: for returns due in 2026, $255 for each person who was a partner or shareholder at any time in the year, for each month or part of a month the return is late, for up to 12 months. A two-owner LLC filing its Form 1065 four months late faces $2,040, even if it made a loss. For returns required to be filed in 2027, the amount rises to $260 per owner per month.
Partnerships with 10 or fewer partners may qualify for relief under a long-standing IRS procedure if every partner reported their share of income on a timely filed return. See late partnership and S corp returns for worked examples.
Which other penalties catch small businesses?
- Information returns. Late or missing Forms W-2 and 1099 carry a penalty per form, which rises the later they are filed.
- Estimated tax. Paying too little during the year is penalized at an interest-like rate on each short instalment. See estimated quarterly taxes.
- Form 5472. $25,000 for each form not filed, or filed substantially incomplete, by a foreign-owned US company. See the Form 5472 guide.
- Payroll taxes. Late deposits are penalized, and unpaid withheld taxes can be charged personally to the people responsible for paying them.
How does interest work?
Interest runs on unpaid tax from the original due date until it is paid, and on most penalties too. The rate is the federal short-term rate plus 3 percentage points for individuals and most businesses, set every quarter and compounded daily. Unlike penalties, interest is generally not removed for reasonable cause. It only falls away when the underlying tax or penalty is reduced.
Can a penalty be removed?
First-time abatement
The IRS removes failure-to-file, failure-to-pay and failure-to-deposit penalties for one tax period if you have a clean record for the previous three years, have filed all currently required returns and have paid, or arranged to pay, the tax. You can ask by phone, in writing, or on Form 843.
Reasonable cause
If you acted responsibly but could not comply because of events outside your control, such as serious illness, a natural disaster or being unable to get records, the IRS can remove the penalty. Explain what happened, when, and what you did to comply as soon as you could, with evidence.
Statutory exceptions
Penalties caused by written advice from the IRS, or by an IRS error, can be removed on that basis.
What should you do if you are already late?
File as soon as you can
The late filing penalty stops growing once the return is filed, and it is the larger one.
Pay what you can
Each payment reduces the balance that penalties and interest are calculated on.
Set up a payment plan for the rest
An installment agreement also halves the late payment penalty rate while it is in force.
Ask for relief
First-time abatement or reasonable cause, once the returns are filed.
If several years are missing, see how to file back taxes for a business.
Facing a penalty notice?
We check the penalty calculation, prepare any late returns, and request first-time abatement or reasonable cause relief where it applies.
Questions people ask
What is the IRS penalty for filing late?
5% of the unpaid tax for each month or part of a month the return is late, up to 25%. For returns due in 2026 filed more than 60 days late, the minimum is $525 or the tax owed, whichever is less.
What is the penalty for paying late?
0.5% of the unpaid tax for each month or part of a month, up to 25%. It drops to 0.25% a month during an installment agreement.
Is there a penalty for filing late if I owe nothing?
Not for an individual or C corporation income tax return with no tax due. Partnership and S corporation returns are penalized per owner even when no tax is owed.
How do I get an IRS penalty removed?
Ask for first-time abatement if you have a clean three-year record, or reasonable cause relief if circumstances outside your control stopped you complying. Form 843 can be used to request either.
Sources
Every fee, date and rule on this page was taken from these official and primary sources.
- IRS: Penalties
- Internal Revenue Code section 6651: failure to file and failure to pay
- Internal Revenue Code section 6698: failure to file partnership return
- Internal Revenue Code section 6699: failure to file S corporation return
- IRS Revenue Procedure 2025-32: penalty amounts for returns required to be filed in 2027
- IRS: Form 843, Claim for Refund and Request for Abatement
- IRS: Online payment agreement
Rules and fees change. If you are reading this long after September 30, 2026, confirm the figures with the source before you rely on them.
Related guides
More in Deadlines, penalties and IRS notices
This guide is general information. It is not tax or legal advice for your situation.