What is the IRS failure-to-file penalty and how is it calculated?

The failure-to-file penalty is charged when you don't file your tax return by the due date (including extensions). The penalty is 5% of the unpaid tax for each month or partial month the return is late, up to a maximum of 25%. If the return is more than 60 days late, the minimum penalty is the lesser of $485 (2024) or 100% of the unpaid tax. This penalty is assessed per return, so if you have multiple unfiled years, the penalty applies separately to each. Example: if you owe $10,000 and file 6 months late, the penalty is $2,500 (25% cap). If you also haven't paid, the combined failure-to-file and failure-to-pay penalty is 5% per month for the first 5 months, then 0.5% per month after that. The failure-to-file penalty is one of the most expensive IRS penalties, which is why filing on time, even with a $0 payment, is always better than not filing. File for an extension (Form 4868) if you need more time. The extension gives 6 extra months to file but does NOT extend the time to pay.