Penalty
A charge imposed by the IRS for filing late, paying late, or underpaying estimated taxes. Common penalties include failure-to-file (5% per month) and failure-to-pay (0.5% per month).
IRS penalties are charges added to your tax bill when you fail to comply with filing and payment requirements. The most common are the failure-to-file penalty (5% of unpaid tax per month, up to 25%), the failure-to-pay penalty (0.5% of unpaid tax per month, up to 25%), and the estimated tax underpayment penalty.
The failure-to-file penalty is much steeper than the failure-to-pay penalty, so if you cannot pay your full tax bill, you should still file your return on time (or request an extension) to avoid the larger penalty. The IRS also charges interest on unpaid taxes, compounded daily, at the federal short-term rate plus 3%.
The estimated tax underpayment penalty applies when you do not pay enough throughout the year through withholding and estimated payments. Meeting the safe harbor — paying at least 100% of prior-year tax (110% if AGI over $150,000) or 90% of current-year tax — avoids this penalty. The IRS may waive penalties in cases of reasonable cause, such as a natural disaster or serious illness, if you request relief.
Related Terms
Safe Harbor
IRS rules that protect you from underpayment penalties if you pay at least 100% of the prior year's tax (110% if AGI over $150,000) or 90% of the current year's tax.
Extension
A request to push your tax return filing deadline from April 15 to October 15. An extension gives more time to file but not more time to pay any taxes owed.
Quarterly Estimated Tax
Tax payments made four times a year by self-employed individuals and others with income not subject to withholding. Due dates are April 15, June 15, September 15, and January 15.
Tax Return
The form(s) you file with the IRS to report income, claim deductions and credits, and calculate your tax liability or refund. For individuals, this is Form 1040.