I am going to address personal income tax returns, but the following is applicable to most types of tax liabilities.
Generally, filing and payment of individual taxes (Form 1040) are due April 15th of every year. You can file Form 4868, postmarked before midnight on April 15th, for an extension of time to file your return. That extension is solely for filing (typically by October 15th, but if that date falls on a Sunday, the return is due the next day).
The IRS charges a 5% monthly penalty for filing late and a 1/2% monthly penalty for paying late when a return is filed after the due date and the tax is not paid by the due date. When both penalties apply in the same month, the late-filing penalty is reduced by the amount of the late-payment penalty for that month.
The penalty for filing late is based on the tax ultimately due that was not paid by the original due date, without regard to any extension. For example, if the total tax liability for the year was $10,000, and you had $8,000 withheld from your wages (the amount shown in the W-2), you would have a balance due of $2,000 to be paid with the filing of the return. The penalties are based on the $2,000 balance due with the return.
The penalty for filing late (the 1/2% per month) is based on the net unpaid tax at the beginning of each penalty month following the payment due date for that tax. Penalties are assessed for each month, or part of a month, the return or payment is late; however, neither penalty may exceed 25% in total.
Income tax returns are subject to a minimum late filing penalty when they are filed more than 60 days after the return due date, including extensions. The minimum penalty is the lesser of two amounts: 100% of the amount required to be shown on the return that you did not pay on time, or a specific dollar amount that is adjusted annually for inflation. For the 2025 returns, the minimum penalty amount is $525, or the balance due, whichever is less.
There is a caveat concerning the late payment penalty. If the IRS issues a Notice of Intent to Levy for the balance of the tax due and the tax is not fully paid within 10 days of the Notice date, the 1/2% late payment penalty increases to 1% per month.
For taxpayers who filed on time but did not pay the balance due by the return’s due date, the 1/2% late payment penalty will be reduced to 1/4% for each month the taxpayer is on an approved installment agreement for payment of that tax.
First Time Abatement (FTA)
This is an administrative waiver used if you have a generally clean compliance history. It applies to failure-to-file, failure-to-pay, and failure-to-deposit penalties (referring to deposit of collected employment taxes). To qualify for this abatement, you must have filed all required returns, paid or arranged to pay any tax due, and had no penalties assessed in the prior three tax years. If you believe you qualify for this FTA, you can call the IRS at the number listed on the penalty notice and ask for the FTA.
Reasonable Cause
If you do not qualify for an FTA, you may request relief by proving you exercised ordinary care and prudence but were unable to meet your obligations due to circumstances beyond your control. Some typical reasons might be fires, natural disasters, serious illness, death of an immediate family member, or unavoidable absence. Lack of funds, by itself, is not considered reasonable cause. Generally, if you are seeking to reduce or eliminate a penalty on the basis of reasonable cause, the assistance of a tax resolution specialist is recommended.
Interest
The IRS will charge interest on any balance due after the normal due date (regardless of a filing extension). The balance due includes any accrued penalties. Interest rates are reviewed quarterly and are subject to change. For 2026, the interest rate for the 1st and 3rd quarters is 7%; for the 2nd quarter, it was 6%.
Interest can only be reduced or abated if it resulted from the IRS making an unreasonable error or delay in performing a ministerial or managerial act. For example, the IRS lost your case file or gave you erroneous written advice. Neither you nor your representative can have significantly contributed to the error or delay. If underlying tax penalties are reduced, the IRS automatically reduces the interest that accrued on those specific penalties.