The IRS Late Payment Penalty: What You Owe
The failure-to-pay penalty is 0.5% of the unpaid tax for each month or part of a month that the payment is late. This penalty starts the day after your tax deadline and continues to accrue until you pay in full or the IRS stops collection activity. The maximum penalty is 25% of your unpaid tax.
The penalty applies to federal income tax, self-employment tax, and other federal taxes you owe. It is separate from interest, which the IRS also charges on unpaid tax. Interest compounds daily and is currently set by law at the federal short-term rate plus 3% — this rate changes quarterly and is announced by the IRS.
If you file your return late and owe tax, you may also face a failure-to-file penalty of 5% per month (up to 25%), which is larger than the failure-to-pay penalty. If both apply, the IRS subtracts the failure-to-pay penalty from the failure-to-file penalty so you do not pay both in full.
Key Takeaways
- The failure-to-pay penalty is 0.5% of unpaid tax per month, capped at 25% total, and starts the day after your tax deadline.
- Interest accrues daily on unpaid tax at a rate set quarterly by the IRS, separate from and in addition to penalties.
- If you file late and owe tax, the failure-to-file penalty (5% per month, up to 25%) may apply instead of or alongside the failure-to-pay penalty.
- Setting up a payment plan with the IRS does not stop the penalty and interest from accruing, but it stops collection action and gives you time to pay.
- The IRS may waive penalties if you have a reasonable cause — such as a serious illness, death in the family, or reliance on a tax professional's bad advice — but not interest.
When the Penalty Starts and How Long It Runs
The failure-to-pay penalty begins on the day after your tax deadline. For most people filing a 1040, that is April 16, 2024 (the deadline was April 15, 2024, but it fell on a Sunday). If you file an extension, the penalty clock starts the day after the extended deadline — usually October 16 for a six-month extension.
The penalty continues to accrue each month until you pay the full amount owed or the IRS closes your account through collection action. Even if you set up a payment plan, the penalty keeps running. The only way to stop it is to pay in full.
The IRS does not charge a partial month's penalty. If you are late by even one day in a month, you owe the full 0.5% for that month. This means paying on the first day of the month after your deadline costs the same penalty as paying on the last day of that month.
How Penalties and Interest Stack Together
Penalties and interest are calculated separately and both appear on your bill. The failure-to-pay penalty is a flat 0.5% per month of the unpaid tax amount. Interest is calculated daily using a rate the IRS sets every quarter.
As of early 2024, the interest rate is 8% per year (this rate changes quarterly). Interest compounds daily, meaning you pay interest on the interest that has already accrued. Over time, interest usually costs more than the penalty itself.
Example: If you owe $5,000 and pay six months late, the failure-to-pay penalty is $150 (0.5% × 6 months × $5,000). Interest at 8% per year compounds daily over those six months and totals roughly $200. Your total bill is $5,350, not $5,000.
Penalties for Filing Late Versus Paying Late
The failure-to-file penalty applies if you do not file your return by the deadline, even if you do not owe tax or are owed a refund. It is 5% of unpaid tax per month, up to 25% total — ten times steeper than the failure-to-pay penalty per month.
If you file late and owe tax, both penalties could apply. However, the IRS does not charge you the full amount of both. Instead, it subtracts the failure-to-pay penalty from the failure-to-file penalty. The result is that you pay the failure-to-file penalty minus any failure-to-pay penalty already owed.
If you file on time but pay late, only the failure-to-pay penalty applies. This is why filing your return by the deadline — even if you cannot pay — is important. Filing on time stops the failure-to-file penalty from accruing.
How to Stop the Penalty From Growing
The only way to stop the failure-to-pay penalty from accruing is to pay your tax bill in full. Partial payments reduce the amount the penalty is calculated on going forward, but they do not stop the penalty itself.
If you cannot pay in full, you can set up a payment plan with the IRS. A short-term extension gives you 120 days to pay with no setup fee. A long-term installment agreement lets you pay over months or years and requires a setup fee ($31 to $225 depending on the method you use). Neither stops the penalty or interest from accruing, but both stop the IRS from taking collection action like wage garnishment or bank levy while you are making payments.
You can request a payment plan online through IRS.gov, by phone at 1-800-829-1040, or by mail using Form 9465 (Installment Agreement Request). The IRS usually approves plans within a few days if you owe less than $50,000.
When the IRS May Remove the Penalty
The IRS can remove the failure-to-pay penalty if you have reasonable cause — a legitimate reason you could not pay on time. Reasonable cause includes serious illness or injury, death in the family, unavoidable absence, reliance on a tax professional's incorrect advice, or a natural disaster.
The IRS does not remove interest, even if it removes the penalty. Interest is considered a charge for the time value of money, not a penalty for misconduct.
To request penalty removal, you must contact the IRS and explain your reason. You can do this by phone at 1-800-829-1040, by mail with a written explanation attached to your tax return, or through an IRS office in person. The IRS reviews your history — if you have a record of paying on time in prior years, removal is more likely.
Penalty removal is not automatic. The IRS denies many requests. If your request is denied, you can appeal through the IRS Office of Appeals.
Payment Methods and Their Effect on Timing
How you pay affects when the IRS receives your payment and when the penalty stops accruing. The IRS considers a payment received on the date it is processed, not the date you send it.
Electronic Federal Tax Payment System (EFTPS) and credit card payments through an IRS-approved processor are received the same day you submit them (if submitted before the daily cutoff, usually around 8 p.m. Eastern time). Direct debit from your bank account is received on the date you schedule it. Check or money order by mail is received when the IRS opens and processes it, which can take one to three weeks after you mail it.
If you are close to the deadline and want to stop the penalty from accruing, use EFTPS or a credit card payment. If you mail a check, the penalty continues to accrue until the IRS actually receives and processes it, not when you mail it.
Frequently Asked Questions
Can I get the penalty removed if I set up a payment plan?
Setting up a payment plan does not remove the penalty, but it stops collection action while you pay. You can request penalty removal separately by explaining your reasonable cause to the IRS. The penalty removal decision is made independently of whether you have a payment plan.
Does the penalty apply if I owe less than $100?
Yes, the failure-to-pay penalty applies to any unpaid tax, no matter how small. However, the IRS has a policy of not assessing a penalty if the tax owed is under $100 and you have filed all required returns in prior years. This is a discretionary policy, not a rule, so it is not may provide.
What if I paid some of my tax on time but not all of it?
The penalty applies only to the amount you did not pay by the deadline. If you owed $10,000 and paid $6,000 on time, the penalty is calculated on the remaining $4,000. Partial payments reduce the penalty going forward but do not eliminate it.
How do I know what interest rate the IRS is using?
The IRS publishes the interest rate quarterly on its website at irs.gov. The rate changes on January 1, April 1, July 1, and October 1 each year. Your IRS bill or notice will show the interest rate applied to your account.
If I file an extension, does that delay when the penalty starts?
Filing an extension delays the filing deadline but not the payment deadline. The payment deadline is still April 15 (or the next business day). If you do not pay by April 15, the failure-to-pay penalty starts on April 16, even if you filed an extension. The extension only gives you more time to file your return, not to pay.