Key Takeaways:

• The failure to pay penalty is issued when you don’t pay your taxes on time. This penalty is 0.5% of your unpaid tax per month, up to 25% of your total tax bill.
• You will receive a notice from the IRS if they issue this penalty after you do not pay.
• Failure to pay the penalty means you will continue to build interest, an additional cost.
• Seven ways to avoid or resolve a failure to pay penalty:
  1. File and pay online
  2. Plan for taxes all year
  3. File your return as soon as possible
  4. Request an extension from the IRS
  5. Set up a payment plan with the IRS
  6. Apply for penalty relief
  7. See if you qualify for first-time penalty abatement

Staying in good standing with the IRS means you file your tax return on time each year, pay quarterly estimated taxes if applicable, and pay your tax obligation right away. However, sometimes taxpayers may miss a deadline, fail to file their return properly, or fail to pay the tax they owe on time. All of these scenarios could lead to a Penalty from the IRS.

The Failure to Pay Penalty is one of the most common. The IRS issues this penalty when your taxes aren’t paid on time. It can be pretty significant, and there’s interest on top of the penalty itself that builds until the tax is paid. It’s important to do everything you can to avoid this penalty. 

What can you expect from an IRS penalty? This guide covers what the failure to pay penalty is, frequently asked questions and answers, ways to avoid or resolve the penalty, and why working with a tax expert is your best bet.  

What Is a Failure to Pay Penalty?

The failure to pay penalty is a federal penalty the IRS charges when taxpayers don’t pay their taxes by the deadline or the approved extended deadline. The penalty is equal to 0.5% of the unpaid tax per month, up to 25% of the total tax owed. Failure to pay your taxes and the failure to pay penalty can lead to very high interest costs, additional fees, or even legal trouble.

The failure to pay penalty can be assessed even if you’re not required to file a return. You still have to pay the IRS all the taxes you owe each year (or each quarter if you are required to pay estimated quarterly taxes). Self-employed individuals, for example, have to pay quarterly taxes, and if they miss a deadline, they may have to pay a penalty.

The best way to avoid the failure to pay penalty is to pay your taxes on time or arrange for an extension with the IRS. You may also qualify for a payment installment plan offered by the IRS, which is discussed more below. 

You can learn more about payment plans and other options by visiting the IRS website or by talking to a tax professional. It’s important to take action if you think you might owe penalties; otherwise, you could end up owing even more money in interest and fees, putting you in a much worse position than facing your original tax bill.

What to Know About the Failure to Pay Penalty

The failure to pay penalty is definitely something to be aware of so you can avoid it all together. Here are a few frequently asked questions to help you navigate this penalty and what it means for you:

How Do You Know if You Owe the Failure to Pay Penalty?

All failure to pay penalties are associated with a failure to make payments on time. Failure to pay penalties are typically assessed when individuals have breached specified payment requirements like missing deadlines or failing to meet minimum payment requirements. The IRS will send you a notice in the mail alerting you that you are being charged with this penalty. Pay close attention to the instructions the IRS gives you.

How Can You Calculate How Much You Owe?

The good news is that it’s not too challenging to figure out what your penalty will be. The first step is to calculate the amount of tax due for the period that the payment was missed. This figure is used in combination with other information, such as filing status and income, to give an overall idea of what the penalty might look like. Once you have this number, you can use an online calculator to provide exact figures, including what your interest will be each month. Check for updates, such as changes in tax deadlines and new tax legislation that may affect these calculations.

How to Lower Your Failure to Pay Penalty

Minimizing the failure to pay penalty can help you better manage your finances. The amount of the penalty depends on various factors such as how much tax is due and how long it remains unpaid. You can lower the failure to pay penalty if you file your return on time, even if you can’t pay all of the taxes due, or ask for a payment plan or installment agreement with the IRS. The agency may also waive part or all of the penalty as part of penalty relief, depending on your circumstances.

Will the IRS Waive Penalties?

Sometimes the IRS makes exceptions, as mentioned above. You can contact the IRS and explain why you’re unable to pay and why you think you should receive a penalty waiver. The IRS will then review your information and make a decision. Taxpayers who demonstrate reasonable cause for their failure to file or pay in a timely manner may be given some leeway.

The best thing you can do to deal with a penalty is to pay the tax you owe, the penalty, and any accumulated interest. Always be open with the IRS if you’re unable to pay your tax bill, as they will usually work with you, as long as you’re honest. A tax expert can help explain your options.

Seven Ways to Avoid or Resolve a Failure to Pay Penalty

A failure to pay penalty can be a very significant cost for the average taxpayer. Take all possible steps to resolve the issue as soon as possible or try to avoid it in the first place. Here’s how to proceed:

1. File and Pay Online

Filing and paying your taxes electronically saves you time and energy on taxes and can help you ensure you pay on time, before you incur a fee. Filing electronically makes it easy to double-check information and submit documents securely, so taxpayers are less likely to overlook filing deadlines or make mathematical errors.

2. Plan for Taxes All Year

It can also be very helpful to set aside enough money throughout the year to cover your tax bill. Don’t leave tax concerns until the spring of the next year. Good financial management requires that you consider your tax obligations ahead of time so you’re not hit with a big tax bill.

3. File Your Return as Soon as Possible

Try to file your return early. Not only do you avoid penalties this way, including the failure to file penalty, but you can also get an instant refund if applicable. You can often get a refund within 21 days if you file electronically. 

One other helpful element of filing early is that it reduces the risk of identity theft because criminals are more likely to use stolen personal information to file fraudulent claims as the deadline nears. You may also reduce the possibility of being targeted for a tax audit, as well as reduce the chances that any particular deduction or credit will be overlooked or disregarded by the IRS. 

4. Request an Extension From the IRS

Filing your taxes can be complex and confusing, especially if you don’t have a traditional work arrangement. You can request an extension from the IRS by filing Form 4868 if you find yourself needing more time to get your paperwork in order. This form allows you to extend the due date beyond April 15. The extra six months granted by this extension should be ample time to ensure your taxes are properly filed and paid on time. 

Keep in mind that while this extension gives you more flexibility in terms of when your documents are due, it does not give more time to pay any balance owed, so make sure that if money is due, it is paid accordingly by the original April deadline.

5. Set Up a Payment Plan With the IRS

You can consider setting up a payment plan with the IRS if you are struggling financially and unable to pay the amount you owe. This allows you to make manageable payments toward your debt, without the worry of increasing interest or additional penalties. 

You can apply for a short-term payment plan, which gives you up to 180 days to pay, or a monthly installment agreement for situations in which you can’t pay your balance in full within 180 days. Setting up a payment plan with the IRS requires a few steps – you’ll need to submit a form that outlines your desired terms along with proof of income and other financial information.

6. Apply for Penalty Relief

You do have a few options to seek relief from IRS penalties. The IRS may grant relief to taxpayers who were unaware of their obligations or acted reasonably. Taxpayers might also petition an appeal or apply for remission if they can’t pay their penalty fees by the due date. Another option is to request equitable relief due to extraordinary circumstances. Here are those relief cases:

• You must prove you made an error because of something the IRS advised you to do
• You must prove your eligibility for a statutory exception, which applies if you live in a federal disaster area or were in a military combat zone
• You must prove you should get reasonable cause relief because of a death, natural disaster, filing system mistake, or other factors that made it impossible

7. See if You Qualify for First-Time Penalty Abatement

First-time penalty abatement is a form of relief the IRS implemented to help taxpayers who normally are in good standing. You can qualify if you made a mistake and it’s your first offense. You need to have paid your taxes on time and filed your returns on time for the last three years and have no other tax-related offenses over that period.

Don’t wait to act if you’ve received a penalty or think you will. Respond to notices right away and follow the IRS instructions carefully. Talk to a tax professional about your failure to pay penalty and what strategies are available to reduce or eliminate it.

Contact a Tax Expert With Questions about Tax Penalties

Filing and paying your tax return can be a daunting task, especially if you are late or unable to pay the full amount owed. You can be sure your taxes are properly filed, penalties will be kept to a minimum, and any owed money can be paid in a timely manner if you take the right steps now. 

Work with a knowledgeable tax professional who can provide expert advice in navigating the complicated world of taxes. There is no substitute for professional support when it comes to dealing with taxation issues, which could easily lead to steep penalties, interest charges, and even legal problems. Taking the right approach now will set you up for success later down the road and make filing taxes less stressful in the future.

The professionals at Silver Tax Group are ready to help you succeed. We can help you understand a penalty, apply for relief, or appeal an IRS decision if applicable. Our experienced tax attorneys assist with everything from debt relief to tax defense to audits to general tax consulting. Reach out to Silver Tax Group to speak to a tax expert about the failure to pay penalty.

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