The 5 most common IRS penalties (and how to get relief) 

In 2024, the IRS issued more than 50 million penalties. Most penalties happen for a few common reasons: filing late, paying late, or making mistakes on a return. 

These penalties can add up quickly. Here are a few of the most common ones—and what they can cost: 

• Failure-to-file penalty: Typically, 5% of the unpaid tax for each month your return is late (up to 25%). If the IRS determines fraud, the penalty can be much higher (up to 75%). If you’re due a refund, you won’t owe a late-filing penalty—but if you wait more than 3 years, you may lose the refund (this is sometimes called the “refund statute expiration date”). 
• Failure-to-pay penalty: One of the most common penalties. It’s usually 0.5% of your unpaid balance per month (up to 25%). 
• Estimated tax penalty: This can apply if you don’t pay enough during the year through withholding or quarterly estimated payments. Think of it like interest on underpayments. The IRS underpayment interest rate changes over time (it has been 7% recently). Many people can avoid this penalty by paying, during the year, at least 90% of the current year’s tax or 100% of last year’s tax (currently, 110% if your adjusted gross income is over $150,000). 
• Accuracy-related penalty: If you file an incorrect return, the IRS may add a 20% penalty. If the IRS determines fraud, it can increase to 75%. 

5 common situations that trigger penalties 

The IRS has more than 150 different penalties, but most people run into just a few. The four penalties above—failure to file, failure to pay, estimated tax, and accuracy—make up the vast majority of penalties assessed to individual taxpayers. 

In practice, penalties usually show up in one of these everyday situations: 

1. Not enough tax withheld from your paycheck 

   If your Form W-4 (withholding form) isn’t set up correctly, you might owe money when you file. In some cases, you can be charged an estimated tax penalty for not paying enough throughout the year. A good fix is to update your W-4 (federal and state) so your withholding better matches what you’ll owe. 

2. Gig or side-hustle income 

   If you earn money driving for Uber/Lyft, freelancing, selling online, or doing other side work, the IRS generally treats that income like small-business income. That means taxes usually aren’t withheld automatically—so it’s on you to set money aside and pay as you go. You likely will also owe self-employment tax (Social Security and Medicare) of about 15.3% on your net earnings, which can make the total bill bigger than expected. The result can be a balance due plus estimated tax penalties. 

   To avoid surprises, many gig workers make quarterly estimated tax payments to the IRS (and sometimes the state). Skipping or underpaying those estimates is a common reason the estimated tax penalty applies. 

3. You can’t pay what you owe right now 

   If you owe back taxes, the IRS typically charges interest and a failure-to-pay penalty until the balance is paid. The good news: filing on time and setting up an IRS payment plan as soon as possible can reduce how fast penalties grow. In many cases (file on time and set up a payment plan before the IRS sends collection notices), the monthly failure-to-pay penalty rate can drop from 0.5% to 0.25% once you’re in an approved installment agreement. 

4. You delay filing because you know you’ll owe 

   This is one of the costliest mistakes: if you don’t file because you can’t pay, the failure-to-file penalty may stack on top of what you already owe. It can grow quickly—up to 25% of the unpaid tax after several months.

   Even if you file an extension, you may still be charged a failure-to-pay penalty if you don’t pay enough by the tax deadline. A common rule of thumb: pay at least 90% of what you’ll owe by the due date to avoid the failure to pay penalty. An extension gives you more time to file—not more time to pay.

5. You forget (or leave out) income 

   Each year, many people accidentally leave income off their return—often from Form W-2s, 1099s, interest, dividends, or side work. If the IRS has an information form showing income you didn’t report, you may receive a notice, and you could be assessed an additional 20% accuracy-related penalty. 

   A smart step is to review the income the IRS has on file by checking your Individual Online Account at IRS.gov. If you realize you missed income, filing an amended return sooner—before you get an underreported notice or audit letter—can help reduce added penalties and stress. 

Penalty relief options (when you may qualify) 

You may be able to get relief for one year of failure-to-file and/or failure-to-pay penalties through the IRS First Time Penalty Abatement (often called “FTA”). In general, you qualify if (1) you filed the three years before the penalty, and (2) you didn’t have penalties in those years. Having an estimated tax penalty in a prior year usually doesn’t disqualify you. Note: FTA does not apply to estimated tax or accuracy-related penalties. 

If you don’t qualify for FTA, you might still request relief based on reasonable cause—for example, a serious illness, natural disaster, or other circumstances that made it truly hard to file or pay on time. Reasonable-cause approvals are less common and generally don’t apply to the estimated tax penalty. For estimated tax penalties, relief is usually handled by claiming an exception when you file (often using IRS Form 2210). 

The golden rules to avoid IRS penalties 

Most IRS penalties come down to three basics: 

1. File your return on time (or file an extension if you need more time). 
2. Pay as you go during the year (through paycheck withholding or quarterly estimated payments). 
3. Double check your return for accuracy and include all income forms you received. 

If you’re facing a penalty, don’t ignore it—many issues can be reduced by filing promptly, setting up a payment plan, or requesting relief when you qualify. If your situation is complicated, consider talking with a qualified tax professional. 

Jackson Hewitt tax resolution specialists work with the IRS, so you don’t have to. Learn more at https://www.jacksonhewitt.com/tax-resolution/.

This article is for general information and isn’t tax advice. IRS rules and fees can change, and your best option depends on your specific facts.