It's still vital for tax professionals to be aware of the updated IRS penalties for late filing and payment. Understanding these penalties can help in advising clients effectively and mitigating potential financial repercussions. 

1. Failure-to-File Penalty

If a taxpayer doesn't file their federal tax return by the due date (typically April 15), the IRS can impose a failure-to-file penalty. 

• Rate: 5% of the unpaid taxes for each month or part of a month the return is late, up to a maximum of 25%. 

• Minimum Penalty: For returns filed more than 60 days late, the minimum penalty is the lesser of $510 or 100% of the unpaid tax.  

2. Failure-to-Pay Penalty

When taxes aren't paid by the due date, even if the return is filed on time, the IRS can charge a failure-to-pay penalty. 

• Rate: 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid, up to a maximum of 25%. 

• Increased Rate: If the IRS issues a notice of intent to levy and the tax remains unpaid for 10 days thereafter, the penalty can increase to 1% per month.  

3. Combined Penalties

If both the failure-to-file and failure-to-pay penalties apply in the same month: 

• Combined Rate: The total penalty is 5% per month, comprising a 4.5% failure-to-file penalty and a 0.5% failure-to-pay penalty. 

• Maximum Combined Penalty: The combined penalties can reach up to 47.5% of the unpaid tax, with 22.5% from late filing and 25% from late payment.  

4. Interest on Unpaid Taxes

In addition to penalties, the IRS charges interest on unpaid taxes. 

• Rate: For the second quarter of 2025, the interest rate is 7% per year, compounded daily.  

• Duration: Interest continues to accrue until the full amount is paid. (irs.gov) 

5. Relief Options

Taxpayers may qualify for penalty relief under certain circumstances: 

• Reasonable Cause: If a taxpayer can demonstrate that failure to file or pay was due to reasonable cause and not willful neglect, the IRS may waive penalties.  

• First-Time Penalty Abatement: Taxpayers with a clean compliance history may qualify for a one-time penalty abatement. (irs.gov) 

6. Action Steps for Tax Professionals

• Prompt Filing: Encourage clients to file returns as soon as possible, even if they can't pay in full. Filing stops the failure-to-file penalty from accruing. 

• Partial Payments: Encourage clients to pay as much as they can to reduce penalties and interest. 

• Installment Agreements: Assist clients in setting up payment plans with the IRS to manage their tax liabilities over time. 

• Penalty Relief Requests: Help eligible clients apply for penalty relief through reasonable cause or first-time abatement provisions. 

Staying informed about the latest IRS penalty structures can help tax professionals provide accurate guidance and support to their clients, helping them navigate post-deadline challenges. 

For tax tips and best practices, subscribe to Taxing Subjects, Drake Software Blog. 

​