Failure-to-Pay Penalty

The failure-to-pay penalty applies when you do not pay the tax you owe by the due date. It is smaller than the failure-to-file penalty, but it keeps growing for as long as a balance is unpaid, so a balance left alone for years can become a large number. This page explains the three rates, how the 25% limit works, and how a payment plan or a relief request can change the result.

What triggers the penalty

The penalty starts when tax is not paid by the due date. For a 2025 Form 1040, that date was April 15, 2026, whether or not you filed an extension. The same penalty applies to tax the IRS later assesses because of a notice, an audit or an unreported item. In that case the clock starts on the due date stated in the IRS notice, and the same rate variations apply.

The unpaid tax is the amount shown on your return, minus withholding, estimated payments and refundable credits you were allowed. Each month is a full month: paying on day two of a month costs the same as paying on day 28.

The three rates

At 0.5% a month, the 25% limit takes 50 months to reach. Interest continues after the penalty stops growing.

Example (hypothetical). You owe $20,000 for 2025 and pay nothing for a year. At 0.5% a month the penalty is $100 a month, or $1,200 after 12 months. Suppose you enter an approved payment plan after month 6 and you filed on time. For the remaining months the rate is 0.25%, or $50 a month on the same balance, so the 12-month total would be about $900. Had a notice of intent to levy been issued and ignored for 10 days, the rate would have become 1%, or $200 a month. Figures are simplified because every payment lowers the balance the rate applies to.

How it works with the failure-to-file penalty

If you filed late, both penalties may apply in the same month. The IRS reduces the failure-to-file penalty by the failure-to-pay amount for that month, so the first five months total 5%: 4.5% for filing late and 0.5% for paying late. After five months the filing penalty has reached its limit and only the payment penalty keeps running. Our failure-to-file penalty page has a month-by-month table.

Interest and payment order

Interest is a separate charge on unpaid tax and, in most cases, on penalties. Interest on a failure-to-pay penalty generally starts from the date the IRS sends a notice or assesses the penalty, not from the tax due date. When you send money, the IRS applies it first to tax, then to penalties, and then to interest. Because the penalty is calculated on unpaid tax, each payment toward the tax lowers the base the penalty rate applies to. Details on how rates are set are on our IRS interest page.

How to avoid or reduce it

• Pay as much as you can by the original due date, even if you cannot pay everything. The penalty is figured on what remains unpaid.
• If you need time, ask for an installment agreement. It can lower the monthly rate for eligible individuals.
• Respond to IRS notices before the deadline. A notice of intent to levy is what triggers the 1% rate, and the ten-day window is short. See IRS notice response deadlines.
• Pay in full when you can. The IRS says paying stops further penalties and interest from building.

Asking for relief

The failure-to-pay penalty is one of the three penalties covered by first-time abatement and by the new automatic exemption the IRS has described for qualifying taxpayers. See first-time penalty abatement for the rules. If those do not fit, reasonable cause is the other route. The IRS says that a lack of funds may qualify when other facts show you used ordinary care and prudence, so records matter: what happened, when, and what you did to pay.

If you disagree with the amount, call the number on the notice or send a signed letter with supporting documents. A tax professional can send the request for you with a power of attorney. The IRS will reduce interest tied to a penalty if the penalty is removed.

How we can help

We can recompute the penalty on your notice, check that payments were applied correctly, and compare a payment plan with other ways to deal with a balance. If you cannot pay the full amount, we can explain options such as an offer in compromise and what each one requires. We do not promise a particular outcome, because the IRS decides each request on its facts.

You can also read about our IRS representation work or contact us.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.