RS Penalties & Interest: What You Need to Know
Failing to pay or file taxes on time can lead to IRS penalties and interest charges, increasing the total amount you owe. This guide explains the different types of penalties, how they’re calculated, and ways to reduce them.
Types of IRS Penalties
1. Failure-to-File Penalty (For Late Tax Returns)
📌 5% of unpaid taxes per month, up to a maximum of 25%.
📌 If more than 60 days late, the minimum penalty is $485 or 100% of the tax owed (whichever is smaller).
🔗 Learn how to File Back Taxes to reduce this penalty.
2. Failure-to-Pay Penalty (For Late Tax Payments)
📌 0.5% of the unpaid tax per month, up to 25%.
📌 If you set up a payment plan, the penalty reduces to 0.25% per month.
🔗 See how to Apply for an IRS Payment Plan.
3. Underpayment Penalty (For Estimated Taxes)
📌 If you underpay your quarterly estimated taxes, the IRS may charge interest.
📌 Typically 3% – 5% of the underpaid amount per year.
🔗 Learn more about Estimated Taxes.
4. IRS Interest on Unpaid Taxes
📌 The IRS charges interest on any unpaid balance until fully paid.
📌 Rate = Federal short-term rate + 3% (adjusted quarterly).
📌 Interest applies even if you set up a payment plan.
How to Reduce or Remove IRS Penalties
🚀 First-Time Penalty Abatement (For Eligible Taxpayers)
✅ Must have filed and paid on time for the past 3 years.
✅ Request via Form 843 or by calling the IRS.
✅ Only applies to failure-to-file and failure-to-pay penalties.
🚀 Reasonable Cause Penalty Relief
✅ Can be granted if you had an emergency, illness, or natural disaster.
✅ Must provide written explanation to the IRS.
🚀 Offer in Compromise (OIC)
✅ Allows you to settle tax debt for less if you qualify.
✅ Includes possible penalty reductions.
🔗 See if you qualify: Offer in Compromise Guide.
What Happens If You Don’t Pay?
🚨 IRS Collections Actions:
- Tax Liens: The IRS can place a lien on your property.
- Levies & Garnishments: The IRS may seize bank accounts or wages.
- Passport Revocation: You could lose your passport if you owe more than $62,000.
🔗 Learn how to avoid collections: How to Pay IRS Taxes & Reduce Debt.
Final Thoughts
IRS penalties and interest can add up quickly, making tax debt harder to manage. To minimize these costs: ✅ File your taxes on time, even if you can’t pay.
✅ Set up a payment plan to reduce penalties.
✅ Explore penalty abatement options if you qualify.
🚀 Next Steps:
- Check your IRS account balance.
- Apply for penalty relief if eligible.
- Make a plan to pay off your tax debt.