The Failure to Pay Penalty is assessed by the IRS when taxpayers do not pay their taxes in full by the due date, typically April 15th of the tax year. This penalty accrues at a rate of 0.5% of the unpaid tax for each month or part of a month the payment is late, up to a maximum of 25% of the total unpaid amount.
Unlike the Failure to File Penalty, which is harsher, the Failure to Pay Penalty accrues more slowly, making it slightly less costly in the short term. However, this penalty can compound over time, especially when combined with interest on the unpaid tax. The longer you delay payment, the larger your tax bill becomes.
To stop the penalty from accruing, it’s essential to pay as much as possible by the deadline, even if you cannot pay the full amount. The IRS may waive the Failure to Pay Penalty if you can demonstrate reasonable cause for not being able to pay, such as illness, loss of income, or natural disasters. Taxpayers may also be eligible for Penalty Abatement if they have a history of good compliance.
If you can’t pay the full balance, consider setting up an Installment Agreement with the IRS, which allows you to pay the debt over time and avoid additional penalties.