How the IRS calculates the bill
Two penalties + interest, stacked. The order matters because the failure-to-file penalty is mathematically reduced when failure-to-pay applies in the same month.
- Failure-to-file (FTF): 5% of unpaid tax per month or part of month, capped at 25%. Hits the wall at month 5.
- Failure-to-pay (FTP): 0.5% per month, capped at 25%. Hits the wall at month 50.
- Combined-month rule: when both apply in the same month, FTF drops to 4.5% so the combined rate stays at 5%. After FTF caps at month 5, FTP alone keeps running at 0.5% until its own 25% cap.
- Interest under IRC 6621: federal short-term rate + 3 percentage points, set quarterly, compounded daily. Interest is charged on tax AND on penalties. It never caps.
- Minimum penalty: returns more than 60 days late owe the lesser of $510 (2025 figure) or 100% of unpaid tax, even if the percentage calc is smaller.
IRS interest rates by quarter (recent)
The IRS publishes underpayment rates each quarter in a Revenue Ruling. The rate equals the federal short-term rate plus 3 percentage points (IRC 6621(a)(2)). Below is the published series.
| Quarter | Underpayment rate | Source |
|---|---|---|
| Q2 2026 (Apr-Jun) | 7% | Rev. Rul. 2026 series |
| Q1 2026 (Jan-Mar) | 7% | Rev. Rul. 2025-23 |
| Q4 2025 (Oct-Dec) | 7% | Rev. Rul. 2025-18 |
| Q3 2025 | 7% | Rev. Rul. 2025-12 |
| Q1 2025 | 8% | Rev. Rul. 2024-25 |
| 2023 (avg) | ~7.5% | IRS quarterly bulletins |
| 2018-2022 (avg) | ~4% | IRS series |
| 2014-2017 (avg) | ~3% | IRS series |
The calculator uses a blended ~6% effective annual rate when years span this range. For an exact figure, run the bill through IRS Online Account.
Worked example: $10,000 owed, 24 months late, no extension
| Component | Amount |
|---|---|
| Tax owed | $10,000 |
| Failure to file: 5 months × 4.5% = 22.5% + month-5 0.5% adjust = capped at 25% | $2,500 |
| Failure to pay: 24 months × 0.5% = 12% | $1,200 |
| Interest: roughly 6.5% avg × 2 yrs daily compound on rolling balance | ~$1,750 |
| Total owed | ~$15,450 |
In other words: $10K of unpaid tax becomes ~$15.5K within two years. After 5 years it can roughly double.
If you had exempt withholding and owe nothing: zero penalty
Both Section 6651 penalties are calculated as percentages of tax due. If your withholding (or quarterly estimated payments) already covered your liability, or you actually owed a refund, the failure-to-file and failure-to-pay penalties are zero even if the return is years late. The catch: you must file within 3 years of the original due date to claim any refund, otherwise the refund is forfeited to the Treasury under IRC Section 6511(a).
For decades-old returns where you cannot reconstruct W-2s, request a Wage and Income Transcript from the IRS, free of charge. It lists every W-2, 1099, and 1098 reported under your SSN going back ~10 years.
Relief programs that can wipe out penalties
- First-Time Abatement (FTA): removes FTF, FTP, and failure-to-deposit penalties if you have a clean 3-year compliance history. Apply by phone (call the IRS at 800-829-1040), in writing (Form 843), or through IRS Online Account. IRS FTA page.
- Reasonable Cause: serious illness, natural disaster, military deployment, death in family, lost records. Standard set by IRM 20.1.1. Document everything.
- Streamlined Filing Compliance (offshore): for US persons abroad who missed FBAR or foreign-income returns, reduced miscellaneous offshore penalty (no FTF/FTP) under the SFOP program.
- Voluntary Disclosure (VDP): for willful non-filers, the IRS Criminal Investigation Voluntary Disclosure Practice can pre-empt criminal prosecution.
- Offer in Compromise (OIC): settles tax debt for less than full amount if you cannot reasonably pay. Form 656.
- Installment Agreement: pay over up to 72 months without IRS levy action, available online if balance < $50K.
Frequently asked questions
I haven't filed since 2014 but had exempt withholding. Do I owe penalties?
If exempt withholding meant you actually owed zero (or got refunds), the IRS FTF and FTP penalties are zero on those years because both are percentages of unpaid tax. But any refund for tax years older than 3 years from the original due date is permanently lost. File now to claim what is still claimable and stop the gap from worsening. Pull IRS Wage and Income Transcripts to reconstruct missing W-2 data.
Does the 25% cap on failure-to-file count from the original due date or extension date?
From the original due date (typically April 15). An extension only postpones the file deadline to October 15. Tax payment is still due April 15. So an extension can knock out the FTF penalty for the April-October window, but FTP and interest still run from April 15 if you underpaid.
What is the IRS interest rate for unpaid 2024 taxes?
7% per year, compounded daily, for all four quarters of 2025 and Q1-Q2 2026 (Rev. Rul. 2025-12, 2025-18, 2025-23, and 2026 series). Rates are set quarterly based on the federal short-term rate plus 3 percentage points under IRC 6621.
Can the IRS jail you for not filing?
Willful failure to file is a misdemeanor under IRC 7203 (up to 1 year per year), and willful tax evasion is a felony under IRC 7201 (up to 5 years). Criminal cases are rare and reserved for high-income non-filers or evidence of concealment. Civilian, non-willful non-filers are almost always resolved with money penalties only.
How far back can the IRS pursue me for an unfiled return?
There is no statute of limitations on assessment for years where no return was filed (IRC 6501(c)(3)). The IRS can come after you forever for unfiled tax years. Once you file, the standard 3-year clock (10 years for collection) starts. This is why filing, even decades late, almost always improves your position.
What is a Substitute for Return (SFR)?
If you don't file, the IRS may prepare a Substitute for Return under IRC 6020(b) using only the income reported on third-party forms (W-2s, 1099s) with single filing status, standard deduction, and no dependents or credits. SFRs nearly always overstate your tax. Always file your own return to correct an SFR.
Will First-Time Abatement remove all penalties?
FTA removes FTF, FTP, and failure-to-deposit penalties for one tax year if (a) you have no prior penalties in the previous 3 years and (b) you are currently in filing compliance. Interest is generally not abated. Save FTA for the year with the largest penalty bill.
Does the late filing penalty apply to state taxes too?
Each state runs its own late-filing penalty. CA: 5%/mo, 25% cap (FTB). NY: 5%/mo (Tax Law 685). Texas: no individual income tax. Check your state's department of revenue.
Sources and methodology
- IRS: Failure to File Penalty. IRC 6651(a)(1), updated 2025-10.
- IRS: Failure to Pay Penalty. IRC 6651(a)(2), updated 2025-10.
- IRS: Quarterly Interest Rates. Rev. Rul. 2025-23 (Q1 2026, 7%), Rev. Rul. 2025-18 (Q4 2025), Rev. Rul. 2025-12 (Q3 2025).
- 26 U.S. Code Section 6651 (Cornell LII). Full statutory text.
- 26 U.S. Code Section 6621 (Cornell LII). Interest rate determination.
- IRS: Penalty Relief. First-Time Abatement and reasonable cause.