What Is the IRS Failure-to-File Penalty?

The IRS failure-to-file penalty is one of the most expensive tax penalties taxpayers can face, and it often starts with something simple: missing the filing deadline. Many people assume penalties apply only when they owe money, but that isn’t always true.

In this guide, we’ll explain what the failure-to-file penalty is, when it applies, and how the IRS calculates it. We’ll also clarify how it differs from the failure-to-pay penalty and share practical options to help reduce penalties and long-term tax consequences.

Table of Contents

1. What the IRS means by “failure to file”
2. How the IRS calculates the penalty
3. Penalties for not filing W-2s and 1099s
4. Common situations that lead to penalties
5. How to reduce or avoid a penalty
6. IRS repayment options
7. When do tax relief services make sense?
8. What to know before hiring a tax relief company
9. Take control before penalties grow

What the IRS means by “failure to file”

Failure to file means you did not file an income tax return by the due date, and it was submitted late (or not submitted at all). For most taxpayers, meeting the due date means filing it by the annual tax deadline, unless an extension is requested.

If you file an extension but don’t submit the return by the extended deadline, the tax return will also be considered late, and the IRS may charge you the failure-to-file penalty.

This penalty generally applies to taxpayers required to file an income tax return, including individuals, self-employed filers, and businesses. It applies regardless of whether the tax return is ultimately filed electronically or by mail.

It’s also important to separate “failure to file” from “failure to pay.” Failure to file relates to submitting the return late, while failure to pay relates to paying the tax owed late. These penalties are different, and the IRS may charge both at the same time.

How the IRS calculates the failure-to-file penalty 

The IRS failure-to-file penalty is usually calculated as a percentage of the unpaid tax shown on your return. In most cases, the penalty is 5% of the unpaid tax for each month (or part of a month) the return is late. The IRS generally caps the penalty accrual at 25% of the unpaid tax.

If your return is more than 60 days late, the IRS applies a minimum penalty. The minimum penalty is the smaller of:

1. A set dollar amount that changes over time
2. 100% of the unpaid tax due on the return

The minimum failure-to-file penalties are as follows, by income tax return type: 

And remember: The failure-to-file penalty is separate from the failure-to-pay penalty. If both penalties apply in the same month, the failure-to-file penalty is often reduced by 0.5% per month, because the IRS limits the combined late-filing and late-payment penalty.

The dollar impact of this penalty depends heavily on your situation. A tax return with a large unpaid balance can trigger steep penalties quickly, while a return with no tax due generally won’t generate a failure-to-file penalty (even if the return is filed late). 

However, filing your tax return late can still cause issues, including delays in processing any tax refunds you might be owed.

Penalties for not filing W-2s and 1099s

Penalties for not filing Forms W-2 and 1099 are often lumped together as failure-to-file penalties in casual conversation, but they work differently. In a technical sense, the IRS failure-to-file penalty applies to the late filing of an income tax return, such as Form 1040 for individuals.

By contrast, W-2s and 1099s are information returns, not income tax returns. These forms report wages and other types of payments, and the IRS uses them to verify income reported on tax returns. Because they serve different purposes, they are governed by different filing rules and penalty schedules.

In general, information return penalties can apply when required W-2 or 1099 forms are not filed, are filed late, or aren’t filed correctly. This matters most for employers and businesses that issue forms to workers and file copies with the appropriate agencies.

Someone asking about a “failure to file a W-2 penalty” or a “failure to file a 1099 penalty” is actually asking about information return penalties, not the penalty for filing a tax return late. When in doubt, confirm the type of form involved; there are various types of IRS penalties.

Common situations that lead to failure-to-file penalties

In many cases, people may risk being charged a failure-to-file penalty simply because they missed a due date for everyday reasons. Individuals might miss deadlines due to major life changes, health issues, or failing to realize they were required to file a return.

For self-employed taxpayers and businesses, late filing may happen because of cash flow challenges, missing documentation, or disorganized bookkeeping. Ownership transitions, staffing changes, or relying on a third party could also delay filing.

Even if you can’t pay what you owe, filing on time (or filing as soon as possible if you’re already late) is usually the best move. If you can’t file by the deadline, submitting an extension is generally far better than not filing at all. 

Willfully attempting to escape income taxes can constitute tax evasion, which is illegal. Filing your returns and communicating with the IRS helps show a good-faith effort to comply, and you may be able to set up a payment plan. The IRS can also confirm whether you owe any taxes.

How to reduce or avoid a failure-to-file penalty

The simplest way to avoid or reduce the failure-to-file penalty is to file your tax return as soon as possible. The penalty is based on how late the return is, so filing sooner can prevent it from continuing to grow.

If you can’t meet the income tax deadline, filing an extension can help you avoid failure-to-file penalties, as long as the return is submitted by the extended due date. Just keep in mind that an extension does not extend the time to pay.

In some situations, taxpayers may also qualify for IRS penalty relief. The relief may include first-time penalty reductions or waivers, or waivers if the IRS determines there’s a reasonable cause after evaluating your individual circumstances.

And if penalties and interest are piling up, taking action to get out of tax debt can help you avoid making the situation worse.

IRS payment options if you can’t pay what you owe

Even if you can’t afford to pay your full tax bill right away, filing on time (or filing as soon as possible if you’re late) can help reduce penalties. If you owe money and can’t pay in full, the IRS offers several options to help you manage the balance. 

Some common IRS tax payment options include:

• Installment agreements (payment plans): Allow you to pay over time through monthly payments. Many taxpayers can set up a payment plan online, depending on their outstanding balance.
• Currently Not Collectible (CNC) status: May pause IRS collection activity if paying would prevent you from meeting basic living expenses. Having your taxes placed in uncollectible status doesn’t erase the debt, but it can provide temporary relief.
• Offer in Compromise (OIC): In some cases, the IRS may accept less than the full amount owed. Eligibility for an Offer in Compromise depends on financial circumstances and other factors.

What’s most important to keep in mind is that filing your tax return and addressing the balance proactively usually gives you more choices than waiting for penalties and interest to grow. Taking action early can also help you feel more in control of the process.

When tax relief services may make sense

Tax relief services can make sense if you’re facing serious IRS collection activity or have a complicated situation you can’t reasonably handle on your own. This could include wage garnishments, bank levies, tax liens, multiple years of unfiled returns, or large balances.

If you’re overwhelmed with the situation, a reputable tax relief company may be able to help negotiate a resolution on your behalf. That said, these services aren’t for everyone. Many taxpayers can resolve issues with the IRS through payment plans or hardship options, often at a lower cost. 

Before paying for help, it’s worth exploring free IRS resources or speaking with an independent tax professional to confirm what options are available.

What to know before hiring a tax relief company

Before hiring a tax relief firm, it’s worth doing a little homework. Fee structures vary widely, and some charge high fees regardless of the outcome. You should also be wary of aggressive sales tactics or promises that sound too good to be true to avoid falling victim to a tax relief scam.

No company can guarantee that the IRS will remove penalties or eliminate tax debt. A reputable tax relief company should clearly explain what they can do, what they can’t do, and what resolution options may realistically apply to your situation.

Anthem Tax Services is one of the highest-rated tax relief companies in our editorial research and stands out for its unusually strong money-back guarantee. The company helps both individuals and businesses resolve tax debt and earns high customer satisfaction scores, along with an A+ rating from the Better Business Bureau.

Unlike many competitors, Anthem’s guarantee is relatively straightforward, offering added peace of mind for taxpayers who want professional help negotiating with the IRS without taking on unnecessary risk. Check out our full review of Anthem for more.

Take control before penalties grow

The IRS failure-to-file penalty can add up fast, especially when it’s combined with interest and other penalties. In many cases, filing your tax return can reduce the damage compared to not filing at all. This is true even if it’s late and even if you can’t pay right away.

If you’re behind, the best next step is usually to file any missing returns and confirm what you owe. From there, you can explore IRS payment options or penalty relief before paying for outside help.

The sooner you take action, the more options you typically have, and the easier it is to keep the situation from getting worse.