What Is the IRS Failure to File Penalty?

If you owe money and don’t file your tax return by the April deadline, the IRS may charge what’s called a failure to file penalty. It’s calculated as a percentage of the total amount you owe, and it can add up fast. 

There’s no charge if you don’t owe taxes, but it’s difficult to know whether you owe unless you file. Filing your taxes on time is the best way to avoid the penalty. Here’s everything you need to know. 

How is the failure to file penalty calculated?

The IRS may assess a failure to file penalty if you don’t file your tax return by the due date, which is usually April 15. But here’s the catch: The penalty only applies if you owe money for the tax year. You don’t need to pay the fine if the IRS owes you money.

The failure to file penalty is calculated as 5% of your unpaid taxes for each month or part of a month that your return is late, up to a maximum of 25%. However, if your return is more than 60 days late, the minimum failure to file penalty is $485 or 100% of your unpaid taxes, whichever is less. The IRS also charges interest on unpaid balances.

It’s also important to note that the IRS charges a failure to pay penalty. However, if both penalties apply in the same month, the IRS won’t charge more than 5%. Once you reach the cap on the failure to file penalty, the failure to pay penalty—0.5% per month or part of a month that your payment is late—will apply. 

IRS penalties for late tax filings

Here’s what the IRS charges.

Condition	Penalty	Details
Max. penalty reached	Stops at 25% of owed amount	After reaching 25%, failure to file penalty stops accruing
Failure to pay penalty starts	0.5% per month	Applies once max. failure to file penalty is reached
Return more than 60 days late	Lesser of $485 or 100% of tax due	Min. penalty kicks in for extensive delays
Interest on unpaid balances	Interest applied on your unpaid balance, including penalties	Accrues until balance is paid

How do you know you have a failure to file penalty?

Before charging any penalties, the IRS will notify you of the failure to file penalty with a letter in the mail that includes the following information:

• Identifying details: The letter will list the notice number, date, taxpayer identification number, tax period, and IRS contact information.
• Missing forms: The IRS will detail which forms you failed to file.
• Amount owed: The federal agency will detail how much you owe based on your prior balance (if applicable), current penalty amount, interest charges, and other charges.
• Instructions: You’ll also get instructions on how to pay the penalty, a warning about what happens if you don’t, and a voucher you can include with your payment. 

Tip

The IRS only communicates via written “snail mail” communications. Be wary of scams if you ever get a phone call or text claiming it’s the IRS. Check out the IRS’s consumer alerts about tax scams.

If you get a notice from the IRS and aren’t sure what it means, you can use the Notices and Letters Search to learn more. 

How do you pay the failure to file penalty?

You can pay the failure to file penalty online with DirectPay from a bank account. You can also use a credit card, debit card, or an eligible digital wallet, but the IRS charges additional processing fees. 

You have options if you can’t pay your tax debt in full. Here are other ways you can handle the penalty:

1. Payment plan: Taxpayers who can’t pay their balance in full, including penalties, can apply for a payment plan. You can typically apply for a short-term plan for 120 days if your balance is less than $100,000. You might be eligible for a more extended plan if your balance is less than $50,000. But keep in mind that the penalty will continue to apply throughout your payment plan.
2. Remove or reduce: If you can prove reasonable cause for not filing or paying on time, you might be able to remove or reduce the penalty. To apply, call the phone number at the top right corner of your notice. 
3. Dispute: If you believe the penalty is inaccurate or disagree with the amount you owe, you can file a dispute. Call the phone number at the top right corner of your notice, or mail a letter explaining why the IRS should reconsider the charges. 

What if you don’t pay the failure to file penalty?

If you owe taxes and don’t pay the failure to file penalty, it maxes out after five months. Once you reach that point, the penalty for failing to pay will start accruing at a rate of 0.5% per month or part of a month, and your bill remains unpaid, up to 25%. The IRS also charges interest until you pay the bill in full. 

Ask the expert

Catherine Valega

CFP®

Typically, a failure to pay accompanies a failure to file. So when you don’t file, you face a significant penalty. If you file but can’t pay (and don’t understand your options), it’s a smaller penalty. The most important part is always to file; if you can’t come up with the necessary tax payment, consult the IRS for a payment plan. Just not paying will make your situation worse.

Failure to file penalties for individuals vs. businesses

​​Individual taxpayers must file tax returns and other applicable tax documents each year. Taxpayers can face the failure to file and failure to pay penalties if they don’t. 

Businesses and corporations face the same penalties, but employers must also file other tax forms. The IRS charges additional penalties if employers don’t file the correct forms and documentation.

Our expert’s experience

Catherine Valega

CFP®

I consult with clients who are business owners and advise them to establish their own board of advisors: a financial planner, an accountant/CPA, a bookkeeper, and an attorney. Many business owners know their trade but aren’t experts in taxes and other topics. Work with a team of trusted advisors who help with all this!

What is the failure to file W2 penalty?

Employers with W-2 employees must file W-2 forms with the Social Security Administration by January 31 each year to avoid penalties. The IRS charges penalties if the employer fails to file by the deadline.

Here’s more about the penalties employers can face:

Condition	Condition (per W-2 form)	Details
Filing within 30 days of due date	$60	Penalty applies up to $664,500 per year ($232,500 for small businesses)
Filing more than 30 days past due date	$130	Penalty increases for filings after 30 days, but by August 1
Filing after August 1	$330	Also applies to employers who file corrections or neglect to file at all; maximum penalty of $3,987,000 ($1,329,000 for small businesses)
Intentional disregard	$660	If you have no intention of filing the required forms, there is no maximum to your penalty
Deadline for filing W-2 forms	N/A	Employers must file W-2 forms with the Social Security Administration by January 31 each year
Earnings threshold for filing W-2	N/A	Required if an employee earns more than $600, any taxes are withheld from earnings, or you’d have withheld taxes if the employee had not claimed exemption from withholding on Form W-4

What is the failure to file a 1099 penalty?

Employers with 1099 employees, including freelancers and independent contractors, must submit 1099 forms by the deadline. The deadline for employers to file the 1099-NEC form is January 31. The deadline for the 1099-MISC form is February 28 if you file on paper or March 31 if you file electronically.

The penalties for failing to file a 1099 form are the same as those for failing to file a W-2—between $60 and $660 for each form, depending on how late the employer files. 

How to avoid a failure to file penalty

Filing your taxes on time and paying your balance by the due date is the best way to avoid the failure to file penalty. But if that’s not possible, you have options. Here’s how you can handle the penalty and minimize charges:

• Apply for an extension: If you need more time to file your tax return, you can apply for an extension. Extensions can provide an additional six months to file your taxes. You must submit your request by the April tax deadline to qualify. An extension can give you more time to file your return, but you may still need to submit an estimated payment on the tax deadline to avoid penalties. 
• Check for disaster relief: The IRS routinely offers filing extensions to taxpayers affected by various natural disasters, such as hurricanes, tornadoes, landslides, flooding, and severe storms. Check the agency’s disaster relief page to see whether you qualify.
• Set up a payment plan: If you’re thinking about delaying filing because you owe money, filing on time and setting up a payment plan with the IRS can help you avoid the failure to file penalty. In most cases, you can apply online for a payment plan. Setup fees range from $0 to $178, but low-income taxpayers can request a fee waiver. Remember, the failure to pay penalty will still apply until you pay your balance in full.

How to help others avoid such penalties

Catherine Valega

CFP®

Talk to your young relatives and colleagues about filing taxes. Financial education must start early. Personal Finance 101 should be a mandatory class for all high schoolers and college students. Many young adults don’t understand why we pay taxes, how they benefit us (in terms of community services), and how the tax system works.

What to do if you’re facing a failure to file penalty

Facing a failure to file penalty can feel overwhelming. You have options if you’re unsure how to handle the charges or need additional guidance. The IRS offers free assistance, and paid professionals are available as well. Here are some potential options to consider to get the help you need: 

• Get on a payment plan: If you can’t pay your tax bill, filing your return and getting on a payment plan can eliminate the failure to file and reduce future failure to pay penalties.
• Request penalty abatement: You might be able to obtain penalty relief if it’s your first tax penalty or you have reasonable cause for not filing on time. Call the number on your tax notice to apply for First Time Abate or Reasonable Cause penalty relief. 
• Hire a tax professional: If your failure to file penalty is due to a complex tax issue, it might make sense to hire a tax professional to help you resolve it. Depending on the situation, you can work with a CPA, enrolled agent (EA), or tax lawyer. 
• Work with a tax relief company: If you have a large amount of tax debt and would prefer to work with a company that can deal with the IRS on your behalf, you can use a tax relief company. These companies have extensive tax experience and can advocate for you and find a solution. 

If you have questions about the penalty, want to set up a payment plan, or remove the charges, you can contact the IRS. Call the phone number on your tax notice, or reach the IRS at 800-829-1040. Contact the Taxpayer Assistance Service (TAS) for free guidance if you can’t resolve the issue.

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