Failure-to-File vs Failure-to-Pay: The IRS Penalties Every Taxpayer Should Know 

Tax problems rarely start with a notice. They usually start with a deadline you couldn’t fully meet. Sometimes the return goes in late. Other times, the return is filed, but the payment doesn’t follow right away. That gap is where IRS penalties begin to build.

What most taxpayers don’t realize is that the IRS treats these two situations very differently. The IRS late payment penalty and the IRS late filing penalty may sound similar, but they grow at different speeds, follow different rules, and can change the total balance more than expected.

Knowing which penalty applies and when is crucial. A minor filing delay can lead to higher costs than months of unpaid tax, and vice versa. This post explains how each penalty works, its interactions, and which poses a greater financial risk, helping you make informed decisions before penalties and interest accumulate.

What Is the IRS Late Payment Penalty?

The IRS late payment penalty is the fee the IRS charges when the tax on your return is not paid by the deadline. It begins as soon as the payment is late, and it keeps adding up until the balance is taken care of.

Here’s how the penalty works in 2025:

• 0.5 percent per month on the unpaid tax.
• It can grow to a maximum of 25 percent.
• Interest gets added to the unpaid balance.
• The rate may drop if you set up an IRS payment plan.
• The rate may increase in certain cases after a final levy notice.

This penalty applies only when the tax is unpaid. Filing on time does not stop it if the payment is still missing.

Understanding the IRS Late Filing Penalty

The IRS penalty for late filing applies whenever a return is submitted after the tax filing deadlines the IRS sets for that filing season. This penalty is larger than the late payment penalty, which is why filing on time is always the safer step.

Here’s what the penalty looks like for 2025:

• 5 percent per month of the unpaid tax.
• Capped at a maximum of 25 percent.
• A minimum penalty applies when the return is more than 60 days late. For 2025, that minimum is $510 or 100 percent of the unpaid tax, whichever is lower.
• When both penalties apply in the same month, the IRS keeps the combined total under 5 percent per month.

This penalty applies only when the return is late. If you file on time but still owe money, the IRS uses the late payment penalty instead.

Also Read → Filing Taxes Jointly vs Separately: Key Pros & Cons

Failure-to-File vs Failure-to-Pay: Key Differences

Both penalties, the IRS late payment penalty and the IRS late filing penalty, come from the IRS, but they work in very different ways. And honestly, this is where people get confused, because the names sound similar. So here’s a simple way to see how Failure to file vs. Failure to pay compares and why one usually ends up costing more than the other.

Key Point	Failure-to-File Penalty	Failure-to-Pay Penalty
What triggers it	The return is filed late	The tax is paid late
Monthly rate	5% per month	0.5% per month
Maximum penalty	25% of unpaid tax	25% of unpaid tax
Minimum penalty after 60 days	Yes, based on the IRS yearly amount	No minimum penalty
How fast does it grow	Very fast	Slowly
Which one is usually worse	Almost always this one	Usually smaller
When it matters most	When the return is missing	When the tax is unpaid
What happens if both apply	IRS adjusts totals under one cap	Works together with the filing penalty

How Do These Penalties Accumulate Over Time?

These penalties grow a little every month, and that’s really how they become a problem. They don’t jump all at once. They just slowly add themselves while the return or the tax stays open.

1. Every month adds something: The IRS counts penalties by the month. Even if you are late by a few days, the IRS can still count it as a full month. So the amount starts building right away.
2. The filing penalty grows quickly: When the return is late, this penalty grows at a fast rate. Most of the total cost in the early months usually comes from this one. Once it reaches its limit, it stops, but by then it can already be a big amount.
3. The payment penalty grows slowly: If the tax is unpaid, this penalty keeps adding itself each month, but at a lower rate. It grows slowly, but it keeps going until the full balance is paid or the penalty reaches its limit.
4. Interest grows at the same time: While all of this is happening, the IRS also adds interest on the unpaid tax and on the penalties. So even when the penalty amounts stay the same, the interest keeps moving the total upward.
5. When both penalties apply, they build side by side: If the return is late and the tax is unpaid, both penalties grow during the same months. The filing penalty moves fast, and the payment penalty moves slowly, but both still grow until the return is filed and the balance is paid.

When the penalties and interest continue to build, the IRS may begin the early stages of collection. This usually starts with a Notice of Intent to Levy, and if the balance remains unpaid, it can move into wage garnishment or even a federal tax lien. These actions happen only after the tax, penalties, and interest stay open for a long time.

How to Calculate IRS Late Payment and Filing Penalties?

The IRS uses a month-by-month method to calculate these penalties, and the math is actually very steady once you see how it works. Since we already explained the rates earlier, here we’re only talking about how the IRS applies those rates when doing the calculation.

1. How the late filing penalty is calculated

The IRS takes your unpaid tax and applies the filing penalty rate to it for each month the return is late. The formula is:

Unpaid tax × 5% × number of months late  (up to the 25% limit)

If the return is more than 60 days late, the IRS uses the minimum penalty for that year. For 2025, that minimum is:

• $510, or
• 100% of the unpaid tax, whichever amount is smaller.

2. How the late payment penalty is calculated

For this one, the IRS again starts with your unpaid tax and applies the monthly rate that fits your situation.

The simple formula is:

Unpaid tax × monthly rate × number of months unpaid

The rate is usually 0.5%, but it can change if you’re on a payment plan or if a levy notice has been sent. The total penalty stops once it reaches the 25% maximum.

3. When both penalties apply in the same month

When the filing penalty and payment penalty overlap, the IRS keeps the combined monthly amount under one cap. The filing portion is reduced, and the payment portion stays the same. The IRS uses this adjustment automatically, so you do not have to calculate it separately.

How to Avoid or Reduce IRS Penalties?

There are a few practical ways to keep IRS penalties low, and honestly, most of them are simple steps that make a big difference. The IRS gives people options, and knowing these options helps you stay in control even when you’re running behind.

1. File on time or ask for an extension

The easiest way to avoid the big penalty is to file your return on time. And if you already know you won’t be ready, filing an extension still helps because it stops the late-filing penalty from starting. It doesn’t delay the payment deadline, but it gives you more time to submit the actual return.

2. Pay whatever you can by the deadline

Even if you can’t pay the full amount, paying something still helps because the IRS penalty and interest grow only on the part that stays unpaid. Many people think partial payment doesn’t matter, but it does; it keeps the overall penalty much smaller.

3. Use a payment plan if you can’t pay in full

If paying in full is not possible, the IRS lets you set up a payment plan. The best part is that the penalty rate becomes lower once the plan is active, so the balance doesn’t grow as quickly. It also shows the IRS that you’re taking steps to handle the situation, which always helps.

4. Ask the IRS to remove penalties when you have a valid reason

The IRS removes penalties more often than people think. They look at the situation and decide if the penalty should be reduced or removed.

Here are the two main types of tax penalty relief explained in simple words:

• First-Time IRS Penalty Abatement: This is the IRS “one-time pass.” If your past few years are clean, meaning you filed your returns and didn’t have penalties, the IRS may remove the penalty for the current year. You don’t need a major hardship for this. It’s simply a one-time courtesy for taxpayers with a good history.
• Reasonable Cause Relief: This applies when something genuinely prevented you from filing or paying on time. The IRS does not expect perfection. They look at what actually happened in your life. Common examples include:

• A serious illness.
• A family emergency.
• Records you couldn’t access.
• A natural disaster.
• Situations that were completely out of your control.

If you can show what happened and why it made things difficult, the IRS may reduce the penalty or remove it.

5. Keep basic records that support your situation

You don’t need anything complicated. Just keep simple documents like:

• Proof of mailing.
• Medical papers.
• Notices from a disaster.
• Letters about your payment plan.

These small pieces of information help when you ask the IRS for relief.

6. Explore hardship or settlement options when the balance becomes unmanageable

When penalties have already grown and the balance is too high to pay, the IRS lets certain taxpayers request relief that reduces the pressure. A financial hardship status can pause collection when regular payments would affect basic living costs. And in situations where full payment is not realistic, an Offer in Compromise may help because it allows taxpayers to settle for a smaller amount based on their financial records. These programs don’t fit every situation, but they can reduce the overall impact when penalties have already built up.

Conclusion

By the time IRS penalties appear on a notice, the filing or payment issue has usually been open for a while. At that stage, the question is no longer which penalty applies, but how to stop the balance from continuing to increase and prevent the situation from moving into collection activity. That shift is where informed action matters most.

And this is where a team that works with the IRS late payment penalty and the IRS late filing penalty every day makes a real difference. Halls and Associates Tax Relief handles late returns and payments, guiding you through penalties and finding relief. They know how the IRS applies charges and when there’s flexibility, providing clear guidance so you don’t have to worry about notices or future letters.If you’re already dealing with penalties or feel like you’re close to falling behind, you don’t have to manage it alone. You can reach out, explain what’s going on, and get steady help from people who know how to handle it from start to finish.

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