IRS Failure-to-File Penalty Hits Unfiled 2025 Returns

Taxpayers who do not submit their 2025 federal income tax returns by the April 15, 2026, due date could see penalties and interest begin accumulating quickly under the IRS failure-to-file penalty rules. Federal law requires the Internal Revenue Service to assess penalties when a required tax return is filed late and the taxes remain unpaid, which can significantly increase the total balance owed.

Federal Law Requires the IRS to Assess Late Filing Penalties

The failure-to-file penalty applies when taxpayers do not submit required income tax returns by the filing deadline. Under Internal Revenue Code Section 6651, the IRS must impose penalties unless a taxpayer can show reasonable cause and demonstrate that the late filing was not due to willful neglect. The rule is codified in the U.S. Code and forms part of the federal framework that governs compliance with tax obligations.

These rules apply to several common tax filings. Individual taxpayers typically submit Form 1040, while corporations file Form 1120 and partnerships use Form 1065. Certain international reporting requirements may also apply, including Form 3520 for taxpayers who receive foreign gifts or a foreign inheritance. When these forms are not filed by the due date, the IRS may assess penalties and send an IRS notice explaining the taxpayer’s outstanding balance.

IRS Begins Calculating the Failure-to-File Penalty After the Deadline

The IRS starts calculating the failure-to-file penalty when the filing deadline passes without a filed tax return or an approved extension. The standard rate equals 5 percent of the unpaid tax for each month or partial month where the return remains unfiled, with the total penalty capped at 25 percent of the unpaid balance.

For example, a taxpayer who owes $10,000 and waits 5 months to file could face a $2,500 penalty before interest is applied. Once penalties are assessed, the IRS may send a notice, a bill, or a formal notice and demand payment for the amount owed.

IRS Applies a Minimum Late Filing Penalty After 60 Days

A separate minimum penalty applies when a tax return is filed more than 60 days after the filing deadline. For returns due after December 31, 2025, the minimum late-filing penalty is $525 or 100 percent of the unpaid tax, whichever is smaller.

This rule can affect taxpayers who owe relatively small balances because the minimum amount may exceed the percentage-based calculation. In some situations, taxpayers may receive a revised notice if additional interest charges or adjustments are added after the initial IRS notice is issued.

Filing an Extension Does Not Stop Interest or Payment Penalties

Taxpayers can request more time to submit a tax return by filing an extension request. However, an extension only delays the filing requirement and does not extend the deadline for paying taxes owed.

If the balance remains unpaid after the due date, the IRS may assess the failure-to-pay penalty and begin calculating interest. Interest begins accruing from the original filing deadline and continues until the outstanding tax balance is paid.

Failure-to-File and Failure-to-Pay Penalties Can Apply at the Same Time

Two different IRS penalties may apply simultaneously when a taxpayer both files late and fails to pay the tax owed. The failure-to-file penalty applies when a return is submitted after the due date, while the failure-to-pay penalty applies to unpaid balances.

The failure-to-pay penalty generally equals 0.5 percent of the unpaid tax per month. When both penalties apply during the same period, the IRS reduces the failure-to-file penalty so the combined monthly rate equals 5 percent.

Interest Charges Continue to Increase Unpaid Balances

In addition to penalties, the IRS charges interest on unpaid tax balances. The interest rate for underpayments is determined quarterly and is based on the federal short-term rate plus three percentage points.

Because interest compounds daily, unpaid balances can increase steadily if the debt is not resolved. IRS statements often include an interest and penalty worksheet showing how interest charges and penalties contribute to the growing balance.

Certain Taxpayers face a higher risk of Late Filing Penalties

Tax professionals say several groups face a higher risk of triggering late-filing penalties or receiving an IRS notice for overdue tax obligations. Self-employed workers and gig economy earners frequently encounter this issue because income tax is not automatically withheld from their earnings.

If households with multiple income sources fail to adjust their withholding amounts throughout the year, they may underestimate their tax obligations. Investment income, side businesses, or additional employment can create unexpected tax liabilities that are not fully covered through payroll withholding.

Financial hardship can also lead some taxpayers to delay filing income tax returns. However, tax professionals often advise filing the return even without payment, as doing so prevents the failure-to-file penalty from increasing. In certain disaster situations, the IRS may grant deadline extensions or other temporary relief measures.

Filing Quickly Can Limit the Financial Impact of Penalties

Tax professionals generally recommend filing the overdue tax return as soon as possible after missing the filing deadline. Filing immediately stops the failure-to-file penalty from increasing further, even if the taxpayer cannot pay the entire balance at that time.

Paying as much as possible when submitting the return can also reduce the overall balance owed. Lower unpaid amounts mean smaller penalty calculations and fewer interest charges accumulating over time.

IRS Payment Plans Allow Taxpayers to Pay Over Time

Taxpayers who cannot pay their balance in full may qualify for an IRS payment plan. The agency offers several payment options, including short-term arrangements and longer-term installment agreement programs that allow balances to be paid gradually.

You can reduce the monthly failure-to-pay penalty by entering an approved installment agreement and making payments. Taxpayers facing financial hardship or disputes may also seek assistance from the Taxpayer Advocate Service or a Low Income Taxpayer Clinic, which provides support for qualifying individuals.

Taxpayers Can Request Penalty Relief in Certain Situations

The IRS offers several forms of penalty relief for eligible taxpayers. One option is First-Time Penalty Abatement, which allows taxpayers with a clean compliance history to request the removal of certain penalties.

Taxpayers may also request reasonable cause relief when circumstances beyond their control prevented them from filing on time. Documentation supporting events such as serious illness, natural disasters, or the loss of financial records may qualify.

If a taxpayer disputes an IRS assessment, they may challenge certain determinations through administrative appeals. Some cases may proceed to the U.S. Tax Court after the taxpayer receives a notice of deficiency outlining the proposed tax liability.

Sources

• Internal Revenue Service — Failure-to-File Penalty
• Internal Revenue Service — Failure-to-Pay Penalty
• Internal Revenue Service — Topic 653: Penalties and Interest
  

‍By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now