Tax Penalty & Interest Calculator
Calculate IRS failure-to-file penalties (5%/month), failure-to-pay penalties (0.5%/month), and daily compounding interest on unpaid tax balances.
Penalties, Interest & Payoff Balance
IRS Penalty & Compounding Interest Formulas
Failure to Pay = Unpaid Tax × 0.5% per month (max 25%) | Failure to File = Unpaid Tax × 4.5% net per month (max 25%) | Interest = Compound Daily at Federal Rate- Failure to File Penalty: 5% per month on unpaid taxes for each month or part of a month the return is late (reduced by failure to pay penalty to 4.5% net, max 25%).
- Failure to Pay Penalty: 0.5% per month on unpaid taxes (max 25%).
- Daily Compounding Interest: Set quarterly by the IRS (federal short-term rate + 3%, currently ~8% annual), compounding daily on unpaid tax plus accrued penalties.
Step-by-Step Worked Example
Calculation Steps:
How to Use This Calculator
Assumptions & Limitations
- Calculations reflect IRS statutory rules under Internal Revenue Code Section 6651.
Frequently Asked Questions
Why is the failure-to-file penalty 10 times higher than failure-to-pay?
The IRS penalizes not filing a return (5% per month) ten times more severely than not paying (0.5% per month). That is why the IRS strongly advises filing your tax return on time even if you cannot afford to pay the full tax balance.
Can IRS penalties be waived or abated?
Yes. First-time non-compliant taxpayers often qualify for IRS First-Time Penalty Abatement if they have a clean three-year filing history, or for Reasonable Cause abatement due to illness, natural disaster, or unavoidable casualty.
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