The failure-to-pay penalty is 0.5 percent of the unpaid tax for each month or part of a month after the due date, up to 25 percent. It is small per month and relentless: at half a percent it takes fifty months to hit the cap, and it keeps going the whole time.
When it starts
The day after the payment due date, which is the original due date of the return. An extension does not change it. For taxpayers abroad on April 15 the start moves to June 15.
When the rate changes
- Down to 0.25 percent per month while an approved installment agreement is in effect, if you filed on time.
- Up to 1 percent per month starting ten days after the IRS issues a final notice of intent to levy, if the balance is still unpaid.
Interaction with the failure-to-file penalty
When both apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay penalty, so the combined charge is 5 percent for those months. After the failure-to-file penalty caps at 25 percent, the failure-to-pay penalty continues alone.
Interest on top
Interest at the federal underpayment rate (7 percent for the fourth quarter of 2026) accrues on the unpaid tax and on the penalties themselves, compounded daily. It is not part of the penalty and it is not abatable.
How to reduce it
Pay what you can, as early as you can. Set up a payment plan to halve the rate. Ask for first-time abatement once the balance is paid or a plan is in place; the IRS grants it more readily when the account is current.
Common mistake
Waiting for the IRS to send a bill before paying. The penalty and interest run from the due date, not from the notice date.
Sources
- IRS, Failure to pay penalty
- IRS, Interest