The penalty for late taxes generally consists of two main components: 1. Failure-to-File Penalty:
- This penalty is usually 5% of the unpaid tax owed for each month or part of a month your tax return is late.
- It can accumulate up to a maximum of 25% of the tax owed.
- If your return is more than 60 days late, the minimum penalty is $510 or 100% of the unpaid tax, whichever is less.
- The failure-to-file penalty stops accruing after five months, but other penalties and interest may continue
2. Failure-to-Pay Penalty (Late Payment Penalty):
- This penalty is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid.
- It can also accumulate up to a maximum of 25% of the unpaid tax.
- If the tax remains unpaid 10 days after an IRS notice of intent to levy, the penalty rate increases to 1% per month.
- If you set up an installment agreement, the penalty rate may reduce to 0.25% per month during the agreement period
Combined Penalties:
- If both penalties apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay penalty amount, so the total combined penalty is generally 5% per month.
- Interest also accrues on unpaid taxes daily, compounding until the balance is paid in full
In summary, if you file late and owe taxes, you can face a penalty of up to 5% per month on the unpaid tax for failing to file, plus 0.5% per month for failing to pay, both capped at 25% of the unpaid tax, along with accruing interest
