How Much Are the Penalties and Interest the IRS Charges?

The IRS imposes penalties to enforce compliance with tax laws, and charges interest and penalties on unpaid taxes that are owed. There are various types of penalties that the IRS can impose for different reasons. The amounts of the penalties vary, and are generally related to the seriousness of the noncompliance.

Late filing penalty

If you are in doubt about filing your federal income tax return when you owe taxes and don't have the money to pay, you should file anyway. You will be charged a penalty and interest for late payment, but at least you won't be charged a penalty for not filing, or for late filing. The penalty for late filing is 5% per month of the balance of tax owed. This penalty accumulates month by month up to a maximum of 25% of the balance of tax owed. If your return is more than 60 days late, the minimum penalty is the smaller of $100 or 100% of the tax owed.

Late payment penalty

If you file on time but don't pay the balance of tax you owe, you will generally be charged a late payment penalty of 0.5% of the tax owed for each month, or part of a month, that the tax remains unpaid, up to 25% of the balance owed. After the IRS has issued a notice of intent to levy, this monthly penalty rate goes up to 1%.

If you paid the taxes you owed when you filed your return, but the IRS makes a correction to your return and you owe additional taxes, you will be charged a late payment penalty and interest on the additional amount owed.

Interest

Interest, compounded daily, is charged on the balance of tax owed, from the due date of the return until the date of payment. The interest rate the IRS charges is adjusted each quarter, and for individuals the rate is the federal short-term rate plus 3 percent. The IRS announced in March 2008 that the rate for the quarter beginning April 1, 2008 will be 6%.