Charged on unpaid taxes for each month (or part of a month) your return is late. Maximum 25% of unpaid taxes. Minimum penalty of $485 if more than 60 days late. Filing an extension eliminates this penalty.
Failure-to-pay penalty
0.5% / month
Charged on unpaid taxes for each month they remain unpaid. Maximum 25%. Reduced to 0.25% per month if you have an installment agreement with the IRS.
Underpayment interest
7% / year
The IRS charges interest at the federal short-term rate plus 3%, compounded daily. The rate is updated quarterly. Current rate for Q2 2026: 7% annually.
Combined FTF + FTP cap
5% / month
When both penalties apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay amount so you're never charged more than 5% total per month.
Frequently asked questions
What is the IRS failure-to-file penalty?
The IRS charges 5% of your unpaid taxes for each month (or partial month) that your return is late, up to a maximum of 25%. If you file more than 60 days after the due date, the minimum penalty is $485 or 100% of the unpaid tax — whichever is less. Filing a tax extension eliminates this penalty entirely.
What is the failure-to-pay penalty?
The failure-to-pay penalty is 0.5% of your unpaid taxes per month, up to a maximum of 25%. If you set up an IRS installment agreement, the rate drops to 0.25% per month. This penalty applies even if you file an extension — extensions only waive the failure-to-file penalty, not the failure-to-pay.
How much interest does the IRS charge?
The IRS charges interest at the federal short-term rate plus 3 percentage points, compounded daily. For Q2 2026, this rate is 7% per year. Interest is charged on both unpaid tax and on penalties themselves. Unlike penalties, IRS interest has no maximum cap.
Can filing an extension help me avoid penalties?
Yes — significantly. Filing a tax extension (Form 4868 for individuals, Form 7004 for businesses) eliminates the 5%/month failure-to-file penalty, which is the most expensive IRS penalty. You'll still owe the smaller 0.5%/month failure-to-pay penalty and interest on any unpaid balance, but your total cost drops dramatically. File your extension now →
Do state penalties work the same as federal?
No — each state has its own penalty rates, interest calculations, and rules. Some states compound interest daily (like California), others annually (like Alabama). Rates range from matching the federal rate to as high as 12% annually. Our calculator covers all 50 states plus DC with accurate, state-specific rules.
Is this calculator really free?
Yes, 100% free with no login required. We built this tool to help taxpayers understand their potential penalties. If you'd like to actually file your tax extension to avoid these penalties, you can do that through TaxSnooze starting at $4.99.