Failure-to-file vs. failure-to-pay penalties

What is the failure-to-file penalty?

The failure-to-file penalty is generally 5% of the unpaid tax for each month or part of a month the return is late, up to 25%. The filing due date is determined with regard to any valid extension. For a calendar-year Form 1040 in the 2027 filing season (tax year 2026 returns) with no extension, the penalty starts the day after Thursday, April 15, 2027. A return that is one day late owes a full month's penalty.

Because it is a percentage of unpaid tax, it is zero when nothing is owed, including when you are due a refund. Partnerships, S corporations, and tax-exempt organizations are different — their late-filing penalties are not based on unpaid tax (see below).

What is the failure-to-pay penalty?

The failure-to-pay penalty is 0.5% of the unpaid tax for each month or part of a month the tax stays unpaid after the original due date, up to 25%. It applies whether or not you filed an extension, because an extension gives more time to file, not to pay.

The rate changes in two situations. It rises to 1% per month if the tax is still unpaid 10 days after the IRS issues a notice of intent to levy. It drops to 0.25% per month for any month an approved installment agreement is in effect, provided the return was filed on time.

What happens when both apply in the same month?

When both penalties apply in the same month, the failure-to-file penalty is reduced by that month's failure-to-pay penalty, so the combined charge is 5% per month, not 5.5%. In practice that is 4.5% for failing to file plus 0.5% for failing to pay.

The caps are separate. The failure-to-file portion stops after five months at 22.5%; the failure-to-pay penalty keeps running until it reaches 25%. The combined maximum is therefore 47.5% of the unpaid tax, before interest.

Is there a minimum penalty?

Yes. If a return is more than 60 days late (including extensions), the failure-to-file penalty is at least the lesser of a fixed, inflation-indexed dollar amount or 100% of the unpaid tax. For returns due in 2027 the fixed amount is $535. The minimum bites when the tax owed is small: owing $200 and filing three months late means a $200 penalty, not $30.

How is interest charged?

Interest runs on unpaid tax from the original due date until the day it is paid, at the federal short-term rate plus 3 percentage points, compounded daily; the IRS sets the rate each quarter. Interest is also charged on penalties. It is not a penalty, so it is not removed for reasonable cause, and an extension does not stop it.

What are the penalties for partnerships and S corporations?

A late Form 1065 or Form 1120-S is penalized per partner or shareholder, per month or part of a month, for up to 12 months — even though the entity itself usually owes no income tax.

For returns due in 2027 the amount is $260 per partner or shareholder per month, indexed annually — about $3,120 for a four-partner LLC that files its Form 1065 three months late. A separate penalty applies for each Schedule K-1 — the statement of each owner's share of the income — sent to owners late. Calendar-year filers in 2027 must file or extend by Monday, March 15, 2027; see the partnership and S-corp guides.

What about nonprofits?

For returns required to be filed in 2027, the late-filing penalty for an organization generally is $25 per day, capped at the lesser of $13,000 or 5% of the organization's gross receipts for the year. For organizations with gross receipts exceeding $1,339,500, the penalty is $130 per day, up to $66,500.

The larger risk is not the penalty. An organization that fails to file a required 990-series return for three consecutive years automatically loses its tax-exempt status. Form 990-N has no late penalty, but a missed 990-N still counts toward the three years. Calendar-year organizations in 2027 must file or extend by Monday, May 17, 2027 — see the nonprofit extension guide.

Can penalties be removed?

Penalty relief may be available when the taxpayer can show reasonable cause and good faith based on all the facts and circumstances. Examples may include fire or natural disaster, inability to obtain records, or death, serious illness, or unavoidable absence of the taxpayer or an immediate family member. Lack of funds by itself is generally not reasonable cause for failing to pay or deposit tax.

For eligible original returns with due dates on or after January 1, 2027, the IRS's Automatic Exemption from Penalty (AEP) replaces First Time Abate. AEP may automatically prevent certain failure-to-file, failure-to-pay, and failure-to-deposit penalties from being assessed when the taxpayer meets the program's eligibility requirements, including the required history of timely compliance. Taxpayers who do not qualify may still request reasonable cause relief when appropriate. You do not have to ask for AEP; if a penalty notice arrives anyway, respond to it and request reasonable-cause relief when the facts support it.

How does an extension change this?

A timely extension removes your failure-to-file exposure until the extended due date. The failure-to-pay penalty and interest still run from the original due date on any balance you don't pay. File a valid extension by the applicable deadline and the failure-to-file penalty generally will not begin unless the return remains unfiled after the extended due date. The failure-to-pay penalty and interest may still accrue from the original payment due date. The short version: file the extension on time and pay what you can by the original due date, and the 5% penalty never starts as long as the return is in by the extended date.

There is one more benefit for individuals. If you pay at least 90% of your total tax by the original due date and the rest with your return by the extended date, the IRS waives the failure-to-pay penalty on that remaining balance. Interest still applies. Corporations that extend with Form 7004 have a similar 90% rule.

A worked example

Say you owe $10,000 with your Form 1040, pay nothing by Thursday, April 15, 2027, and file 3 months late. Both penalties apply each month, so the combined rate is 5% (4.5% + 0.5%).

Both cases also owe interest on the $10,000 from the original due date. Dates for every return type are in the 2027 deadlines guide.

Penalty FAQ

Sources

• IRS: Failure to file penalty: the 5% a month rate and 25% cap, the offset when both penalties apply, the 60-day minimum, the per-owner penalty for partnerships and S corporations, and interest on penalties
• IRS: Failure to pay penalty: the 0.5% a month rate and 25% cap, the 1% rate after a levy notice, the 0.25% payment-plan rate, and the 4.5% + 0.5% split
• Revenue Procedure 2025-32 (PDF): the minimum-penalty and per-owner amounts for returns due in 2027
• Internal Revenue Manual 20.1.2, Failure To File/Failure To Pay Penalties: how the two penalties combine in the same month
• IRS: Interest: interest runs from the due date, even with an extension, and isn't removed for reasonable cause
• IRS: Quarterly interest rates: the federal short-term rate plus 3 points, compounded daily, set each quarter
• Instructions for Form 1065: the per-partner penalty and the separate Schedule K-1 penalty
• IRS: Annual exempt organization return: penalties for failure to file: the nonprofit per-day penalty and its cap
• IRS: Automatic revocation of exemption: automatic revocation after three years without filing
• IRS: Annual electronic filing requirement for small exempt organizations (Form 990-N): no penalty for a late Form 990-N, though a missed year still counts
• IRS: Penalty relief for reasonable cause: reasonable-cause relief
• IRS: Administrative penalty relief: Automatic Exemption from Penalty replaces First Time Abate
• IRS: Penalty relief: interest on a removed penalty is removed too
• Form 4868, with its instructions (PDF): the 90% rule for individuals
• Instructions for Form 7004: the 90% rule for corporations
• IRS: Filing past due tax returns: the three-year window to claim a refund