IRS Failure To File and Pay Penalties and Ways To Avoid These Costly Penalties

IRS Failure To File and Pay Penalties and Ways To Avoid These Costly Penalties

Failure To File and Failure To Pay Penalties For Federal Income Tax Returns

It is never a good idea to file late or to fail to pay taxes timely. This is especially the case with the IRS. There is interest due when taxes are paid late and various penalties apply.

This article discusses two of the penalties that the IRS can assert against delinquent taxpayers, namely the failure to file and the failure to pay. Note that both of these penalties can be imposed on taxpayers. The article offers certain safe harbors and ways to avoid these penalties.

Here are some of the basic rules in this area:

Failure To File Penalty

If you do not file by the tax due date (or the extended due date if an extension was filed), you face a failure-to-file penalty.

Failure To Pay Penalty

If you do not pay by the due date, taxpayers are subject to the failure-to-pay penalty.

Failure To File Penalty Is More Costly Than the Failure To Pay

The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return on time and explore other payment options in the meantime.

Cardinal Rule for Taxpayers When It Comes To Filing Tax Returns:

The general rule of thumb is to always file your return timely even if you have no money to send with the return, since this will avoid the failure to file penalty.

Penalty For Failure To File is 5% Per Month Up to 25%

The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty cannot exceed 25 percent of your unpaid taxes.

Minimum Failure to File Penalty: Lesser of $135 or 100% of Unpaid Tax

If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. So if you owe at least $135 in taxes, you have a minimum failure to file penalty of $135.

Failure To Pay Penalty: 1/2 of 1% For Each Month with a 25% Maximum

If you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid.

This penalty can be as much as 25 percent of your unpaid taxes.

Special Rule Where In Any Month There is Both a Failure To File and Failure To Pay

If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.

Safe Harbors For Failure To Pay Penalty Avoided

Tax Liability is Less Than $1,000

Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholding taxes and credits.

90% Payment By Due Date Exception

Generally, if you timely filed a request for an extension of time to file and you paid at least 90 percent of your actual tax liability by the original due date of the return, you will not be faced with a failure-to-pay penalty if the remaining balance is paid by the extended due date.

So if your return shows a tax liability of $10,000, but you paid by withholding or estimated taxes $9,000 by the due date of the return and paid the balance of $1,000 by the extended due date, there would be no penalty for failure to pay.

100% Of Tax Shown on Prior Year Tax Return

There is no failure to pay penalty if you paid 100% of the tax shown on the return for the prior year.

Exception For Reasonable Cause

You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect. A showing of reasonable cause depends on the facts of each case.

The IRS points out that the penalty may also be waived if:

  • The failure to make estimated payments was caused by a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty, or
  • You retired (after reaching age 62) or became disabled during the tax year for which estimated payments were required to be made or in the preceding tax year, and the underpayment was due to reasonable cause and not willful neglect.

In any event, generally it is usually fairly difficult to meet this reasonable cause test unless the reasons for not filing timely are quite compelling and unforeseen.

“I highly recommend Mr Fromm as both an accountant and as a lawyer as I’ve had an extensive working relationship with him. He is personable, meticulous and highly competent. He performs his tasks in an efficient, professional and complete manner. I highly recommend him.”
Jeffrey Alpern, November 12, 2008

1420 Walnut Street Suite 300
Philadelphia, PA 19102

Telephone: 215-735-2336

Connect With Us:


In order to help you more quickly, please
fill out the form and click “submit”.
A representative of the firm will call you shortly.

  • This field is for validation purposes and should be left unchanged.

From their offices in Philadelphia, PA, the law firm of Steven J. Fromm & Associates, P.C. provides a full range of estate planning, probate and estate administration, tax, business and corporate legal services to clients throughout eastern Pennsylvania and the Delaware Valley, the Lehigh Valley Area, the Five-County Area, Bucks County, Delaware County, Montgomery County, Chester County, Philadelphia County, Berks County, Lehigh County, Lancaster County, York County, Harrisburg, Norristown, Doylestown, Media, West Chester, Allentown, Lancaster, and Reading.