The IRS charges two separate penalties when you pay taxes late: a failure-to-pay penalty and interest on the unpaid amount.
The failure-to-pay penalty is 0.5% of the unpaid tax for each month or part of a month that the payment is late. This penalty starts the day after your tax important date and continues to accrue until you pay in full. The maximum penalty is 25% of what you owe.
On top of the penalty, the IRS charges interest on the unpaid tax amount. Interest is calculated daily from the due date until you pay. The interest rate changes quarterly and is based on the federal short-term rate plus 3%. For 2024, the rate is 8% per year, but this varies by quarter and changes year to year.
These charges stack on top of each other. If you owe $1,000 and pay it six months late, you would owe the original $1,000, plus interest calculated daily for those six months, plus a failure-to-pay penalty of 3% (0.5% × 6 months). The longer you wait, the more both the penalty and interest grow.
Key Takeaways
- The failure-to-pay penalty is 0.5% per month, capped at 25% of your unpaid tax, and begins the day after your tax important date.
- Interest accrues daily on unpaid taxes at a rate that changes quarterly, currently around 8% per year but varying by period.
- Paying even a few days late triggers both the penalty and interest, so the total cost grows quickly the longer you delay.
- The IRS will notify you of the exact penalty and interest owed when you receive a bill or notice.
How the failure-to-pay penalty works
The failure-to-pay penalty accrues at 0.5% of your unpaid tax for each month or partial month you are late. "Partial month" means that even if you pay one day into the next month, you owe a full month's penalty. If you owe $5,000 and pay three months late, the penalty is $75 (0.5% × 3 × $5,000).
The penalty stops growing once you pay in full, but it will never exceed 25% of your unpaid tax, no matter how many years pass. If you owe $1,000, the maximum penalty you can be charged is $250. The IRS applies this penalty automatically—you do not have to do anything to trigger it.
There are narrow exceptions. If you can show that you had reasonable cause for the delay and did not act with willful neglect, you may be able to request that the IRS remove or reduce the penalty. This requires submitting Form 843 (Claim for Refund and Request for Abatement) with documentation of your circumstances. The IRS reviews these requests case by case, and approval is not may provide.
How interest compounds on unpaid taxes
Interest is different from the penalty. While the penalty is a flat percentage of your unpaid tax, interest is calculated daily on the unpaid balance. The IRS compounds interest, meaning interest accrues on top of previously accrued interest.
The interest rate is set by law and changes every quarter. It is the federal short-term rate (set by the Treasury Department) plus 3 percentage points. In 2024, the rate has been 8% per year, but it was lower in previous years and may change in future quarters. You can find the current rate on the IRS website under "Interest Rates."
Interest begins accruing the day after your tax important date, even if you have not yet received a bill. Unlike the penalty, there is no cap on interest. The longer you wait to pay, the more interest accumulates. On a $5,000 unpaid tax at 8% annual interest, you would owe roughly $100 in interest for three months of delay, but $400 for a full year.
When penalties and interest are waived or reduced
The IRS can remove penalties in specific situations. If you missed the important date because of a casualty, disaster, or significant illness, you may have grounds for removal. You must submit Form 843 with evidence—such as a doctor's note, insurance claim, or FEMA documentation—showing the reason for the delay.
If the IRS made an error in its records or sent you incorrect information that caused you to pay late, the penalty may be removed. You would need to provide documentation of the error, such as a letter from the IRS or proof that you relied on incorrect guidance from an IRS representative.
Interest is rarely waived because it is a charge for the time value of money, not a penalty for misconduct. However, if the IRS made a significant error that delayed your ability to pay, you may request interest abatement. This is a separate request from penalty abatement and is evaluated differently.
What happens if you cannot pay the full amount right away
If you owe taxes but cannot pay in full when ready, you have options that may reduce the total penalty and interest you accumulate. Paying any amount, even partial, stops the penalty from growing on the portion you have paid. The penalty continues only on the remaining unpaid balance.
You can set up a payment plan with the IRS. A short-term extension gives you up to 180 days to pay without a formal agreement. A long-term installment agreement lets you pay over months or years. While you still owe interest and penalties on the unpaid balance, having a formal plan in place shows the IRS you are acting in good faith and may help if you later request penalty abatement.
You can request an installment agreement by phone at 1-800-829-1040 or through the IRS website. The IRS charges a setup fee for formal agreements, which varies depending on how you set it up (online is cheaper than by phone). Even with these fees, paying sooner rather than later reduces the total interest you owe.
How to find out what you owe in penalties and interest
The IRS will calculate and notify you of penalties and interest through a bill or notice. You do not have to calculate these yourself. When you receive a notice, it will itemize the original tax owed, the penalty amount, and the interest amount separately so you can see exactly what each charge is.
If you have already paid but want to verify the calculation, you can call the IRS at 1-800-829-1040 with your tax return information. An IRS representative can tell you the exact amount of penalty and interest assessed on your account as of that date.
You can also check your account online through the IRS website if you have set up an account. Your account transcript will show the original tax, penalties, and interest applied to your return. Keep in mind that if you are still within the payment important date, no penalty or interest has been assessed yet.
Frequently Asked Questions
Do I owe a penalty if I pay one day late?
Yes. The failure-to-pay penalty begins the day after your important date and accrues for any part of a month you are late. Paying even one day late triggers the 0.5% penalty. Interest also begins accruing when ready. However, the total dollar amount for one day is small—on a $1,000 debt, one day of interest at 8% annual rate is roughly 22 cents.
Can the IRS remove penalties if I have a good reason?
The IRS can remove penalties for reasonable cause, such as serious illness, a death in your family, or a natural disaster. You must submit Form 843 with documentation within three years of the original important date. The IRS reviews each request individually, and approval depends on your specific circumstances and whether you acted with willful neglect.
Is the interest rate the same every year?
No. The interest rate changes quarterly and is based on the federal short-term rate plus 3%. It was 8% in 2024 but has been different in other years. The IRS publishes the current rate on its website, and you can look up the rate that applied during the period you owed taxes.
What if I set up a payment plan—do penalties and interest stop?
No. Even with a payment plan, interest and penalties continue to accrue on the unpaid balance until you pay in full. However, having a formal agreement shows good faith and may help if you later request penalty abatement. Paying sooner reduces the total interest you accumulate.
How do I request that the IRS remove a penalty?
Submit Form 843 (Claim for Refund and Request for Abatement) to the IRS service center that processed your return. Include a written explanation of your reasonable cause and supporting documents such as medical records, insurance claims, or proof of disaster. You have three years from the original important date to request removal.