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Penalties and interest on back taxes
The biggest penalty is usually for not filing at all. Here's how penalties generally work, and when relief may be available.
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Federal penalties (general rules)
Because the failure-to-file penalty is roughly ten times the failure-to-pay penalty, filing on time (or as soon as possible) even if you can't pay can limit the damage.
- Failure to file: generally 5% of the unpaid tax for each month or part of a month the return is late, up to 25%. A minimum penalty can apply if a return is more than 60 days late.
- Failure to pay: generally 0.5% of the unpaid tax per month, up to 25%. In months when both apply, the failure-to-file penalty is reduced by the failure-to-pay amount.
- Interest accrues on unpaid tax and on many penalties until paid in full. The rate is set quarterly.
California
The FTB has its own late-filing and late-payment penalties, plus a possible demand penalty if you don't respond to a demand to file. Interest also applies. See ftb.ca.gov for current rules.
Penalty relief
- First-time abatement: may be available if you had a clean compliance history for the prior three years.
- Reasonable cause: relief may be granted for circumstances like serious illness, disaster, or inability to obtain records, if you acted with ordinary care.
- Interest generally can't be removed, except when the underlying penalty is reduced or in limited cases.
Common questions
If I don't owe anything, is there a penalty for filing late?
The federal failure-to-file penalty is based on unpaid tax, so if you're due a refund there's generally no penalty. You may lose the refund if you wait more than about three years.
Are you a tax firm?
No. File Back Taxes is a free referral service. We pass your request to an independent tax resolution firm or tax professional, who decides whether and how they can help.
Is it too late to file old returns?
Generally, no. You can file a past-due return at any time, and filing is usually the first step toward resolving the problem. Refunds, however, are generally only available if you file within three years of the original due date.
How many years do I need to file?
It depends on your situation. The IRS generally focuses on the last six years for filing compliance, but it can ask for more. A tax professional can review your IRS transcripts and advise you.