The failure-to-file penalty is 5 percent of the tax you did not pay by the due date, charged for each month or part of a month the return is late, up to 25 percent. It is the most expensive penalty most people will ever see, and the easiest to avoid: file something by the deadline, even an extension.
How it is computed
Start with the tax on the return. Subtract what was paid on time (withholding, estimates, extension payments). The remainder is the unpaid tax. Multiply by 5 percent for each month, counting a partial month as a full one. Stop at five months, which is the 25 percent cap.
When the failure-to-pay penalty also applies in the same month, the failure-to-file penalty is reduced by that 0.5 percent, so the combined rate is 5 percent, not 5.5.
The minimum penalty
If the return is more than 60 days late, the penalty is at least the smaller of a fixed dollar amount or 100 percent of the unpaid tax. For returns due in 2026 the fixed amount is $525. It is indexed and the 2027 figure appears in the form instructions when published. This is why a return that owed $200 and was filed in August costs $200 in penalty, not $50.
Who it applies to
Individuals (Form 1040) and C corporations (Form 1120). Partnerships and S corporations have a different, per-owner penalty on their own page.
How to stop it
File. The penalty stops accruing the month the return is filed. Then ask for relief: first-time abatement if the prior three years were clean, reasonable cause if they were not.
Common mistake
Not filing because you cannot pay. The failure-to-pay penalty is 0.5 percent per month. Filing on time and paying nothing costs one tenth of what not filing costs.
Ready to file it?
You can file a personal extension (Form 4868) or a business extension (Form 7004) online in a few minutes with TaxExtension.com, an IRS-authorized e-file provider operated by our publisher. The extension is automatic; the payment is still due on the original date.
Sources
- IRS, Failure to file penalty
- Internal Revenue Code section 6651(a)(1)