Penalties and interest
| Charge | How it works |
|---|---|
| Failure-to-file penalty | 5% of the unpaid tax for each month or part of a month the return is late, up to 25%. For a return more than 60 days late, a minimum applies: $525 for returns due after December 31, 2025, or 100% of the tax due if that’s less |
| Failure-to-pay penalty | 0.5% of the unpaid tax each month, up to 25%. It rises to 1% a month if you don’t pay within 10 days of a notice of intent to levy, and drops to 0.25% during an approved payment plan if you filed on time |
| Interest | Charged on unpaid tax, and on penalties, until the balance is paid |
When both penalties apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay amount. The failure-to-file penalty maxes out after five months; the failure-to-pay penalty keeps going.
What the IRS does, step by step
- It notices. Employers, banks and others report your income to the IRS. A missing return stands out.
- It writes to you. Usually a CP59 first, then reminders like CP515 and CP516, then a final reminder, CP518. If you’re due a refund on another year, a CP63 says it’s on hold.
- It may file for you. The IRS can prepare a substitute for return using reported income, often without the deductions and credits you’d claim.
- It sends a Notice of Deficiency. A CP3219N gives you 90 days to file your own return or petition the Tax Court.
- It assesses and collects. Balance-due notices follow, then possibly a federal tax lien and levies on wages and bank accounts.
Other costs of not filing
- Lost refunds after three years.
- No Social Security credit for self-employment income you didn’t report.
- Trouble with lenders, who often ask for filed returns for mortgages, refinancing, business loans and student aid.
- Locked-out IRS options: the online payment plan and automatic penalty relief both depend on filing.
The good news
Filing late is always better than not filing. Each return you file stops its failure-to-file penalty from growing, replaces any IRS estimate with real figures, and moves you toward a payment plan or other resolution.