Interest is compounded daily and charged on any unpaid tax from the due date of the return (without regard to any extension of time to file) until the date of payment.
- The interest rate is the federal short-term rate plus 3 percent. That rate is determined every three months.
In addition, there are late payment penalties.
- The late payment penalty is one-half of one percent of the tax (0.5%) owed for each month, or part of a month, that the tax remains unpaid after the due date, not exceeding 25 percent.
- The one-half of one percent rate increases to one percent if the tax remains unpaid after several bills have been sent to you and the IRS issues a notice of intent to levy.
- If you filed a timely return and are paying the tax via an installment agreement, the penalty is one-quarter of one percent for each month, or part of a month, that the installment agreement is in effect.
If you did not file on time and owe tax, you may owe an additional penalty for failure to file unless you can show reasonable cause.
- The combined penalty is 5 percent (4.5% late filing, 0.5% late payment) for each month, or part of a month, that your return was late, up to 25%.
- After five months, if you still have not paid, the 0.5% failure-to-pay penalty continues to run, up to 25%, until the tax is paid.
- The total penalty for failure to file and pay can be 47.5% (22.5% late filing, 25% late payment) of the tax owed.
- If your return was over 60 days late, however, the minimum failure-to-file penalty is the smaller of $135 ($100 for returns required to be filed before January 1, 2009) or 100% of the tax required to be shown on the return.