Last Updated: December 3, 2025
An IRS penalty can quickly turn a tax bill into a financial headache. The IRS enforces tax laws, and not following them can lead to added costs on top of what you already owe. Understanding these penalties is key to avoiding them and keeping more of your hard-earned money. Most taxpayers want to know what penalties exist, how much they cost, and what to do if they face one.
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Understanding Common IRS Penalties
The IRS uses penalties to encourage taxpayers to meet their filing and payment duties. These penalties can add up quickly, sometimes becoming as large as the original tax owed. Knowing the main types of penalties helps you avoid these extra costs.
The IRS imposes penalties for several reasons. These usually involve not filing on time, not paying on time, or making mistakes on your tax return. Here are the most common types and their rates:
| Penalty Type | Rate/Amount | Caps & Notes |
|---|---|---|
| Failure-to-File Penalty | 5% per month of unpaid tax, up to 25% | For returns due in 2025, if filed over 60 days late, minimum penalty is the lesser of >$510 or the full tax due |
| Failure-to-Pay Penalty | 0.5% per month of unpaid tax, up to 25%. Can rise to 1% after a levy notice | Penalties continue after the failure-to-file limit. Combined penalties can reach 47.5% |
| Combined Late Filing and Payment | 5% per month for up to 5 months, then 0.5% per month | Both penalties apply if you file and pay late, but the total is capped |
| Business Late-File Penalties | Charged per partner or shareholder, per month, up to 12 months | Exact dollar amounts are set each year in IRS instructions for Forms 1065 and 1120-S |
| Information Return Penalties | $340 per return for 2025 filings | Caps depend on business size. Reduced penalties apply if corrected quickly |
| Tax Preparer Penalties | $60 per failure in 2025, up to $31,500 per year | Applies to issues like missing signatures or lack of due diligence |
| Criminal Tax Penalties | Up to $100,000 for individuals, $500,000 for corporations, plus up to 5 years in prison | Used for intentional tax evasion, not simple mistakes |
How Penalties Accumulate
If you file late and pay late, the IRS charges both penalties. The failure-to-file penalty is usually 5% per month up to 25%, and the failure-to-pay penalty is 0.5% per month up to 25%. When both apply in the same month, the total rate is 5%. The combined penalties can reach 47.5% of the unpaid tax.
Interest also applies to unpaid taxes and penalties until the full balance is paid. The IRS sets the interest rate each quarter. For many individual taxpayers, the rate has been about 7% annually in 2025.
IRS Penalty Relief and Exceptions
The IRS may reduce or remove penalties if you qualify for penalty relief. This usually applies when you can show that you tried to meet your tax obligations but could not due to circumstances outside your control.
First-Time Abatement (FTA)
You may qualify for FTA if all of the following are true:
- You have no penalties for the previous three years
- You filed all required tax returns
- You paid or arranged to pay the tax you owe
Reasonable Cause
The IRS may remove penalties when certain unexpected events prevent you from filing or paying on time. Examples include:
- Natural disasters or accidents, such as fires or floods
- Serious illness or death in your immediate family
- Unavoidable absence, such as military service
- Inability to obtain necessary records
Administrative Waivers
The IRS sometimes offers administrative waivers for specific years or situations. These programs reduce or remove penalties when taxpayers meet the required conditions.
Each year, the IRS abates tens of billions of dollars in penalties for taxpayers who qualify. For official details, refer to the IRS guidance on penalties, penalty relief, and reasonable cause.
How MileageWise Helps You Avoid IRS Penalties
For many self-employed individuals and small businesses, mileage deductions are vital. However, if your mileage log is not accurate or compliant, it can lead to penalties if the IRS audits you. This is where MileageWise steps in.
MileageWise focuses on creating IRS-compliant mileage logs. Here is how it directly helps you avoid painful IRS penalties related to your mileage deduction:
Tools for Audit-Proof Mileage Logs
- Google Maps Timeline Import Recover months or years of missing trips by importing your Timeline data directly from your phone. Perfect when you need to rebuild logs fast. Now available on our mobile app.
- AI Mileage Log Generator: Automatically reconstructs past drives when your records are incomplete. Set your mileage or deduction amount, along with other preferences, and the AI Wizard does the rest.
- IRS Compliance Auditor: Checks every trip against IRS rules and flags potential red flags, so you can fix problems and avoid triggering an audit.
- Bulk Client & Trip Import: Upload routes, client lists, or repeated drives in one step, ideal when you must assemble a clean, consistent log quickly.
- Comprehensive Trip Management: Categorize drives, edit trips in batches, and organize your entire year’s mileage to create a complete, audit-ready record.
Try MileageWise for free for 14 days. No credit card required!
Google Timeline to Mileage Log App
AI Logs & Google Timeline Import
Customer Story: Avoiding an IRS Penalty
I work as an HVAC technician, driving from house to house all day for repairs and maintenance calls. When I got a notice that the IRS wanted to review my mileage deductions, I froze. I never kept a proper mileage log, just rough notes on my phone, and I was terrified of ending up with an IRS penalty for incomplete records.
That’s when I found MileageWise. I used the AI Wizard on the dashboard and entered every past service visit and work trip I had written down. The AI quickly rebuilt my missing drives, and I could review and categorize every trip. The system also checked my log against IRS rules, which helped me feel confident again.
When I submitted the completed mileage log, the IRS accepted it without any issues. The relief was huge. MileageWise helped me avoid an IRS penalty and finally get my records under control.
Summary
Avoiding an IRS penalty is much easier than dealing with one. The best approach is to stay on top of your self-employed taxes from the start. Always file your return on time, even if you cannot pay everything right away, because filing late leads to much harsher penalties than paying late. Try to pay as much as you can by the deadline, and review your withholding or estimated payments during the year to prevent underpayment issues. Good recordkeeping also matters, especially if you claim business mileage, since clear logs make audits far less stressful. If the IRS contacts you, respond quickly instead of letting notices pile up. And if you are ever unsure about your situation, working with a tax professional can help you avoid mistakes and stay compliant.
FAQ
What are the most common IRS penalties?
Failure to file, failure to pay, underpayment of estimated tax, accuracy-related, and civil fraud. Employers can also face deposit penalties. Each has different rules and rates.
How much is the failure-to-file (late filing) penalty?
Usually 5% of the unpaid tax per month or part of a month, up to 25%. If failure-to-file and failure-to-pay apply for the same month, the 5% is reduced by the 0.5% failure-to-pay for that month. If you file more than 60 days late, a minimum penalty applies (the lesser of a set dollar amount or 100% of the unpaid tax).
How much is the failure-to-pay (late payment) penalty?
Generally 0.5% of the unpaid tax per month, up to 25%. It can drop to 0.25% while an installment agreement is in effect and you filed on time. It can rise to 1% after a Notice of Intent to Levy.
What is the maximum IRS penalty?
The maximum late-filing penalty is 25% of the unpaid tax, and the maximum late-payment penalty is 25%. When both apply, the combined total can reach 47.5% of the unpaid tax, plus interest.
Can you pay an IRS penalty online?
Yes. You can pay IRS penalties online through IRS.gov/pay, using a bank account, debit card, credit card, or an approved payment service.
Does filing an extension remove penalties?
An extension gives you more time to file, not more time to pay. It avoids the failure-to-file penalty if you file by the extended date. Failure-to-pay penalties and interest still apply to unpaid amounts.
How does IRS interest work with penalties?
Interest accrues on unpaid tax and on some penalties until paid. Rates change quarterly and are based on the federal short-term rate plus a set percentage. Check the IRS interest rate notices for the current rate.
Can the IRS remove penalties?
Yes, through First-Time Abatement or reasonable cause relief. Reasonable cause can include serious illness, records destroyed, or reliance on incorrect written advice. You must be current with filing and payment to qualify.
What should I do if I can’t pay my tax bill?
File on time and pay what you can to limit penalties. Then request an installment agreement or a short-term payment plan. In hardship cases, ask about an offer in compromise or temporary collection delay.
