Summary: The IRS failure-to-file penalty is 5% of unpaid tax per month (max 25%, with a $525 minimum if more than 60 days late on 2026 returns). The failure-to-pay penalty is 0.5% per month (max 25%, halved to 0.25% on an installment agreement). When both apply in the same month the combined charge is capped at 5%. Interest at the federal short-term rate plus 3 points (7% for Q3 2026) compounds daily with no cap and cannot be abated. Filing on time, even without payment, stops the larger penalty.
How IRS penalties stack up
Two penalties and interest can apply to the same unpaid balance, and they behave differently. The failure-to-file penalty is the aggressive one: 5 percent of the unpaid tax for each month or part of a month the return is late, capped at 25 percent. File more than 60 days late and a minimum penalty applies: the lesser of $525 (for returns due in 2026) or 100 percent of the unpaid tax. The failure-to-pay penalty is gentler: 0.5 percent per month, also capped at 25 percent, dropping to 0.25 percent per month while an approved installment agreement is in effect.
When both penalties hit the same month, the IRS does not stack them to 5.5 percent. The combined charge is capped at 5 percent per month: 4.5 percent for filing plus 0.5 percent for paying. After five months the file penalty maxes out at 25 percent and only the 0.5 percent pay penalty keeps running. Interest is separate and merciless: the federal short-term rate plus 3 percentage points (7 percent for the quarter beginning July 1, 2026), compounded daily, with no cap and no abatement.
The single cheapest move is always the same: file on time even if you cannot pay. Filing stops the 5-percent penalty cold; the 0.5-percent penalty and interest keep running, but at a tenth of the combined monthly rate.
Worked example
You owe $5,000 for 2025, file three months late with no extension, and pay six months late with no installment agreement. Failure to file: 3 months at 5 percent = $750 (the 60-day minimum does not bind since 5 percent times 3 months exceeds it). Failure to pay: 6 months at 0.5 percent = $150. Interest at 7 percent compounded daily for six months on $5,000 is about $177. Total: roughly $6,077, or 21.5 percent more than the original tax. File on time and pay six months late instead: $150 penalty plus $177 interest, about $5,327.
2026 IRS penalty and interest rates
Download the penalty rate table (CSV).
| Charge | Rate | Cap | Notes |
|---|---|---|---|
| Failure to file | 5%/mo | 25% of unpaid tax | $525 minimum if >60 days late (2026 returns) |
| Failure to pay | 0.5%/mo | 25% of unpaid tax | 0.25%/mo on installment agreement; 1%/mo after levy notice |
| Combined (same month) | 5%/mo | 47.5% combined max | 4.5% file + 0.5% pay |
| Interest on underpayment | 7% annual (Q3 2026) | No cap | Fed short-term rate + 3 pts; compounded daily; reset quarterly |
| Estimated tax underpayment | Same as interest | No cap | Form 2210; safe harbor 90%/100%/110% |
Guides
- Failure to File vs Failure to Pay: Which IRS Penalty Hurts More: Failure-to-file (5%/mo) vs failure-to-pay (0.5%/mo): how each works, the 60-day $525 minimum, the combined 5% cap, and why filing on time is always the priority.
- First-Time Penalty Abatement: How to Get IRS Penalties Waived: First-time penalty abatement explained: the 3-year clean record rule, which penalties qualify, how to request it by phone or letter, and what to do if denied.
- Estimated Tax Underpayment Penalty and Safe-Harbor Rules (2026): The underpayment penalty for 2026: how Form 2210 works, the 90%/100%/110% safe harbors, quarterly due dates, and the 7% interest rate.
- How Far Back the IRS Can Penalize You: Statute of Limitations: The 3-year, 6-year, and unlimited lookback rules: how long the IRS has to assess penalties, and when the clock never starts.
- IRS Installment Agreements vs Ongoing Penalties: The Real Cost: What an IRS payment plan costs: setup fees, the 0.25% penalty rate, continuing interest, and when an offer in compromise beats installments.
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Data current as of October 2026. Sources: IRS Topic No. 653, IRS Rev. Rul. 2026-10, Form 2210 instructions. This tool gives rough estimates for planning only and is not tax, legal, or financial advice.