The Internal Revenue Service charges two different penalties on late taxes, and they run at very different speeds. Filing late costs 5 percent of the unpaid tax for each month or part of a month, while paying late costs 0.5 percent, and an approved payment plan cuts that second figure to 0.25 percent. With the extended filing date of October 15 close at hand, the two rates and the way they interact set the cost of waiting.
Ten times the speed: 5 percent against 0.5 percent
The IRS’s failure-to-file penalty page sets the filing charge at 5 percent of the tax due, less any tax paid on time and available credits, for each month or partial month a return is late. The penalty accrues up to a maximum of 25 percent. The base is the tax still owed, so a taxpayer who prepaid most of the liability through withholding or estimated payments is charged on a small remainder.
The payment charge works on a gentler schedule. On its failure-to-pay penalty page, the agency states the rate as 0.5 percent of the unpaid taxes for each month or part of a month, and says the penalty will not exceed 25 percent of the unpaid taxes. Both are per-month rates applied to the unpaid tax, not one-off charges levied once and forgotten.
Both clocks can run in the same month
A taxpayer who neither files nor pays is exposed to both penalties at once, and the IRS does not simply stack them. The failure-to-pay page says that if both are applied in the same month, the failure-to-file penalty is reduced by the amount of the failure-to-pay penalty applied that month. The filing page repeats the point, describing the reduction as 0.5 percent for each month.
In practice the filing charge nets to 4.5 percent in a month when both apply, and the payment charge supplies the remaining half point, so the combined bill stays at 5 percent a month for that stretch. The IRS adds that after five months the failure-to-file penalty will max out, but the failure-to-pay penalty continues. The filing penalty reaches its 25 percent ceiling first because it moves ten times faster, then stops, and the slower payment charge keeps accruing toward its own cap.
The cap is applied separately to each penalty. The IRS does not describe a single combined ceiling on its pages, and none is stated here.
Partial months are charged as full months
Both penalties use the same counting convention. The filing page says the charge applies to each month or partial month a return is late, and the payment page says the IRS applies full monthly charges, even if the tax is paid in full before the month ends. A return filed on the second day of a new month is billed as though the month had run its course.
For returns more than 60 days late there is also a floor. The filing page lists a minimum penalty of $510 for Forms 1040 and 1120 for returns due in 2025, an amount adjusted annually for inflation.
The payment-plan reduction and the condition attached
The 0.5 percent payment rate falls to 0.25 percent for a qualifying taxpayer. The IRS wording requires that the person filed the return on time as an individual and has an approved payment plan. Under those conditions the failure-to-pay penalty is reduced to 0.25 percent per month, which halves the second of the two rates.
The condition matters. A taxpayer who filed late does not obtain the lower payment rate merely by arranging an installment agreement, according to the page’s own phrasing, and the filing penalty keeps its 5 percent rate regardless. The reduction also depends on the plan being approved by the agency, not merely requested.
October 15 and the line between filing time and paying time
The extended deadline is where the two penalties collide. The IRS’s extension page, last reviewed on September 20, 2026, says an extension requested by the April filing date gives taxpayers until October 15 to file without penalties. It adds that the extension is only for filing the return, and that tax owed must still be paid by the April date.
A taxpayer who obtained an extension and files by October 15 therefore avoids the 5 percent filing charge. A balance that was not paid in April has been drawing the 0.5 percent payment charge in the meantime and continues to draw it until the tax is paid. The filing page makes the same distinction in one line, saying that an extension to file does not grant an extension of time to pay.
Interest runs on top. The IRS’s quarterly interest rate page, drawing on Internal Revenue Bulletin 2026-36, lists 7 percent as the underpayment rate for the quarter from October 1 through December 31, 2026.
Relief the filing page does name
The failure-to-file page says the penalty does not apply if the taxpayer can show the failure was due to reasonable cause. The IRS may remove or reduce penalties on that basis when a taxpayer acted in good faith, and the agency’s own page, last reviewed or updated on February 7, 2026, is the controlling source for how that standard is stated.
Unfiled returns and the three-year clock on refunds
Some taxpayers skipped a return because they expected to owe nothing, and for a few of them the missing return means a refund was never requested. Refunds on returns that were never filed carry a time limit, and once it passes the claim is gone.
The IRS Refund Recovery Kit is a 13-page kit built around the 3-year refund deadline, with a refund status tracker spreadsheet for logging each year’s return and a notice decoder for the letters that follow.
Sort which tax years fall inside the 3-year refund deadline with The IRS Refund Recovery Kit →
Drafted with the help of AI and verified against the Internal Revenue Service penalty pages linked above.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
