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Tax FAQ:

IRS Penalties & Interest

Our IRS Penalties & Interest resources explain tax penalties, accrued interest, underpayments, and penalty abatement.

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IRS Penalties & Interest

An accuracy-related penalty is an IRS penalty that may apply when a taxpayer understates tax or fails to meet certain tax reporting requirements because of negligence, disregard of rules, or a substantial understatement of income tax.

The IRS may impose an accuracy-related penalty when the requirements for the penalty are met, such as when a taxpayer substantially understates tax or is negligent in preparing a return.

The accuracy-related penalty is generally 20% of the portion of the underpayment attributable to the applicable conduct.

Potentially. The IRS may remove or reduce an accuracy-related penalty when the taxpayer can establish reasonable cause and acted in good faith or when another applicable exception applies.

A substantial understatement generally occurs when the understatement exceeds the applicable statutory threshold based on the taxpayer’s tax liability.

No. An accuracy-related penalty generally addresses certain understatements or negligent conduct, while civil fraud penalties involve intentional conduct with the purpose of evading tax.

Yes. Certain mistakes can result in an accuracy-related penalty if they meet the requirements for negligence or another penalty category.

Potentially. Reliance on professional advice may support a reasonable-cause defense when the taxpayer acted in good faith and the applicable requirements are satisfied.

Yes. Taxpayers generally have opportunities to dispute an accuracy-related penalty through IRS administrative procedures and, in appropriate circumstances, judicial review.

Review the notice and determine why the penalty was assessed. If you believe the penalty is incorrect or you have reasonable cause for requesting relief, you can respond to the IRS with an explanation and supporting documentation.

Accrued interest is interest that accumulates on an unpaid tax balance over time.

Interest generally begins accruing from the date the tax was due until the balance is paid in full, subject to applicable tax rules.

Yes. Interest generally continues to accrue while an unpaid tax balance remains outstanding, including during an installment agreement.

Yes. Interest added to an unpaid tax balance can increase the total amount required to resolve the account.

In limited circumstances, the IRS may abate certain interest when specific statutory or administrative requirements are met.

Interest is generally charged for the time a tax liability remains unpaid, while penalties are imposed for specific failures to comply with tax requirements.

Interest generally stops accruing once the applicable liability has been fully paid, although additional interest may sometimes be calculated for processing periods.

Potentially. Taxpayers can request an explanation or review if they believe interest was calculated incorrectly or was assessed under circumstances that qualify for relief.

A tax professional cannot automatically eliminate interest, but may help determine whether the taxpayer qualifies for interest abatement or another resolution option.

Paying the tax liability as quickly as possible generally limits the amount of interest that can accumulate.

A failure-to-file penalty is an IRS penalty that may apply when a taxpayer does not file a required tax return by the applicable deadline or extended deadline.

For many individual income tax returns, the penalty is generally calculated as a percentage of the unpaid tax for each month or part of a month the return is late, subject to statutory limits.

Generally, a taxpayer who is entitled to a refund does not owe a failure-to-file penalty because there is no unpaid tax on which the penalty would generally be based.

Potentially. The IRS may remove the penalty when the taxpayer can establish reasonable cause or qualifies for another available penalty relief program.

A valid filing extension generally provides additional time to file the return, but it does not generally extend the time to pay taxes owed.

The failure-to-file penalty may continue to increase until it reaches the applicable maximum or the return is filed.

Yes. Taxpayers can request penalty relief when they have a valid basis, such as reasonable cause or eligibility for an applicable administrative relief program.

Generally, penalties are calculated based on the circumstances of each tax year and the applicable unpaid tax liability.

Yes. A taxpayer who files late and also fails to pay the tax owed can potentially be subject to both penalties.

You should generally file required delinquent returns as soon as possible and determine whether you owe taxes, penalties, and interest. Resolving unfiled returns can also help prevent additional IRS collection problems.

A failure-to-pay penalty is an IRS penalty that may apply when a taxpayer does not pay the tax owed by the applicable payment deadline.

The penalty generally begins accruing after the payment due date when an unpaid tax balance remains outstanding.

The penalty is generally calculated as a percentage of the unpaid tax and can increase over time until it reaches the applicable maximum.

No. Filing a return does not generally stop a failure-to-pay penalty when a tax balance remains unpaid.

No. A filing extension generally gives additional time to submit the return but does not generally extend the deadline for paying the tax.

Potentially. Taxpayers may qualify for penalty relief based on reasonable cause, certain administrative relief programs, or other applicable provisions.

Interest can generally accrue on unpaid penalties as well as unpaid tax, depending on the applicable rules.

Entering into an installment agreement does not necessarily eliminate the failure-to-pay penalty. Applicable penalty rules continue to apply while the balance remains unpaid.

You may have several potential collection options, including an installment agreement, temporary collection delay, or other resolution depending on your financial circumstances.

Paying the balance as soon as possible generally limits additional penalties and interest. If you have reasonable cause or another qualifying circumstance, you may also request penalty relief.

The IRS generally charges interest when taxpayers do not pay their federal tax liabilities by the applicable deadline.

Interest generally begins accruing from the date the tax was due until the tax is paid in full.

Interest on unpaid federal tax can compound daily under applicable federal tax rules.

Yes. Interest generally continues to accrue on the unpaid balance while the taxpayer makes payments under an installment agreement.

Yes. The IRS interest rate can change periodically based on federal law and applicable interest-rate calculations.

In limited situations, the IRS may abate interest when specific legal or administrative requirements are satisfied.

Generally, yes. Interest is generally calculated based on the unpaid balance, so reducing the principal tax liability can reduce future interest accumulation.

Interest can generally accrue on certain unpaid penalties after they have been assessed.

Yes. If you believe interest was calculated incorrectly or was assessed under circumstances qualifying for abatement, you may request an IRS review.

The most direct way to stop interest from continuing on an unpaid tax liability is to pay the applicable balance in full. Other relief may be available in limited circumstances.

Interest abatement is the reduction or removal of certain interest charges assessed by the IRS when the taxpayer meets specific legal or administrative requirements.

In certain circumstances, yes. However, interest abatement is limited and does not automatically apply simply because a taxpayer cannot afford the balance.

Qualifying circumstances can include unreasonable IRS errors or delays in certain situations, as well as other circumstances specifically authorized by federal tax law.

Financial hardship by itself generally does not automatically qualify a taxpayer for interest abatement. Other forms of tax relief may be more appropriate depending on the circumstances.

Potentially. If the IRS caused an unreasonable error or delay in performing a ministerial or managerial act, certain interest may qualify for abatement.

Yes. A taxpayer or authorized representative can request interest abatement when there is a legitimate basis for doing so.

A taxpayer generally requests interest abatement through the appropriate IRS process and should explain the circumstances supporting the request.

No. Interest abatement generally affects interest charges only and does not eliminate the underlying tax liability.

Interest can generally continue to accrue on an unpaid balance while the request is being reviewed unless a specific rule provides otherwise.

If the request is denied, the taxpayer may have additional administrative appeal options depending on the reason for the denial and the type of interest abatement requested.

IRS tax penalties are financial charges imposed when taxpayers fail to comply with certain federal tax requirements.

Common penalties include failure-to-file penalties, failure-to-pay penalties, accuracy-related penalties, estimated tax penalties, and penalties related to certain information reporting requirements.

Penalties are generally intended to encourage taxpayers to comply with tax filing, payment, reporting, and other federal tax obligations.

Potentially. Certain penalties may be reduced or removed when the taxpayer qualifies for reasonable-cause relief, first-time penalty abatement, statutory exceptions, or another applicable relief provision.

Reasonable cause generally involves circumstances showing that the taxpayer exercised ordinary business care and prudence but was unable to comply with a tax requirement because of circumstances beyond the taxpayer’s reasonable control.

Yes. Taxpayers can generally request penalty relief directly from the IRS when they believe they qualify.

Paying the underlying tax generally stops additional failure-to-pay penalties from continuing to accrue, but previously assessed penalties may remain unless they are separately reduced or removed.

Yes. Interest can generally accrue on certain unpaid penalties.

Yes. A taxpayer can generally challenge a penalty if it was assessed incorrectly or if the taxpayer believes a valid basis for penalty relief exists.

The IRS generally identifies the penalty and reason for assessment in the applicable notice or account information. Taxpayers can review the notice and request an explanation if additional clarification is needed.

Penalty abatement is the reduction or removal of an IRS penalty that has been assessed against a taxpayer.

Eligibility depends on the type of penalty and the taxpayer’s circumstances. Potential grounds include reasonable cause, first-time penalty relief, statutory exceptions, and certain IRS errors.

First-time penalty abatement is an administrative relief option that may allow qualifying taxpayers to have certain penalties removed when they meet the applicable IRS requirements.

Reasonable-cause relief may apply when a taxpayer can demonstrate that they exercised ordinary business care and prudence but could not comply because of circumstances beyond their reasonable control.

Yes. Depending on the circumstances, a taxpayer can potentially request removal of an assessed penalty even after the underlying tax has been paid.

A taxpayer can generally request penalty relief through the method specified by the IRS or by submitting an appropriate written request explaining the reason relief should be granted.

Supporting documentation depends on the reason for the request. Evidence may include medical records, insurance records, correspondence, financial documentation, or other records supporting the circumstances.

Processing times vary depending on the type of request, the complexity of the taxpayer’s account, and the IRS workload.

A taxpayer may have the right to request reconsideration or pursue an administrative appeal, depending on the type of penalty and the reason for denial.

Not necessarily. Removing a penalty does not automatically remove all interest associated with the penalty. Separate rules govern interest abatement.

An underpayment penalty is a tax penalty that may apply when a taxpayer does not pay enough federal income tax during the year through withholding or estimated tax payments.

Taxpayers who owe enough tax at the end of the year and did not make sufficient timely payments during the year may be subject to an underpayment penalty.

The penalty generally depends on the amount of tax that was underpaid, when the payments were due, and the applicable federal interest rate.

Yes. Federal income tax withheld from wages is generally treated as paid throughout the year for purposes of certain underpayment penalty calculations.

Making sufficient and timely estimated tax payments can generally help taxpayers meet their required tax payments and avoid an underpayment penalty.

Taxpayers may generally avoid an underpayment penalty by meeting one of the applicable safe-harbor requirements, such as paying enough during the year based on current-year or prior-year tax liability, subject to the specific rules.

Potentially. Certain taxpayers may qualify for penalty relief based on reasonable cause, specific statutory exceptions, or other applicable provisions.

No. A tax balance due at filing does not automatically mean an underpayment penalty applies. The IRS considers the amount and timing of payments made during the year and whether an exception or safe harbor applies.

Yes. A significant increase in income during the year can result in insufficient withholding or estimated tax payments and may create an underpayment penalty.

Review your expected income and tax liability during the year and adjust wage withholding or estimated tax payments when necessary. Taxpayers with variable income should periodically review their estimated tax position rather than waiting until the annual filing deadline.

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