What Are Penalties for Not Paying Taxes?

If you file your return but don't pay the full amount owed, the IRS charges a "failure-to-pay" penalty of 0.5% of the unpaid tax per month (up to 25% total). Interest also accrues on unpaid balances at the federal short-term rate plus 3%. The combined penalties and interest can add up quickly. To reduce the damage, pay as much as you can by the filing deadline and set up a payment plan for the rest. The failure-to-pay penalty drops to 0.25% per month if you have an installment agreement in place.