What's the Difference Between the Failure-to-File and Failure-to-Pay Penalties?

Missing the tax deadline can trigger two separate penalties — one for not filing and one for not paying — and they're calculated differently. The failure-to-file penalty is 5% of the unpaid tax per month (or part of a month) that your return is late, up to a maximum of 25%. The failure-to-pay penalty is 0.5% of the unpaid tax per month, up to 25%. When both apply at the same time, the failure-to-file penalty is reduced by the amount of the failure-to-pay penalty, so the combined rate is 5% (not 5.5%) per month. If you can't pay your full tax bill by the deadline, you should still file on time — or get an extension — because the failure-to-file penalty is 10 times more expensive than the failure-to-pay penalty.