IRS Penalties Making Your Tax Debt Worse?

Sky View Tax Resolution can guide you toward relief and help you regain control.

Understanding Common IRS Penalties

Missed filing or paying your taxes can lead to IRS penalties, even if you had a valid reason. Penalties can also apply if your return contained errors or a payment was rejected. Here’s a breakdown of some of the penalties you might encounter.

Failure-to-Pay Penalty

This penalty is charged for unpaid taxes, regardless of whether a return is filed. It’s 0.5% per month of the unpaid balance and can reach up to 25% of the total owed.

Underpayment Penalty

Since the U.S. is a pay-as-you-go system, taxes must be paid as income is earned. If you underpay by more than $1,000, you may face an underpayment penalty calculated based on when the payment was due and interest accrued.

Returned Payment Penalty

For returned payments under $1,250, the penalty is $25 or the payment amount, whichever is less. For amounts over $1,250, the fee is 2% of the rejected payment.

How to Request IRS Penalty Relief

The IRS may provide penalty relief for taxpayers who faced unavoidable circumstances. If you’re due a refund and missed filing, the failure-to-file penalty may be waived. For unpaid taxes, three relief options exist:

Reasonable Cause

Penalties may be waived for valid reasons beyond your control. Lack of funds alone usually doesn’t qualify, but other circumstances may.

  • Natural disasters (fires, floods, hurricanes, etc.)
  • Death or serious illness (you or immediate family)
  • Incapacitation or unavoidable absence
    • Other situations may qualify if you can show you exercised ordinary care but still could not meet tax obligations.

    First-Time Penalty Abatement

    This relief applies if:

  • No penalties in the prior three years or you weren’t required to file
  • All required returns filed or extension requested
    • For failure-to-pay penalties, it’s best to request abatement after your tax debt is fully paid.

    Statutory Exception

    This may be granted when IRS provides incorrect written guidance. To qualify, you may need:

  • Written request for IRS advice
  • Residence in a federal disaster area
  • Evidence of relying on incorrect IRS advice
    • Administrative relief is harder to prove but may be requested by mail or phone. Documentation of penalties and adjustments linked to incorrect advice may be required.

    Don’t let IRS penalties overwhelm you. Contact Sky View Tax Resolution to manage your tax debt and prevent penalties from compounding.

    Sky View Tax Resolution “Outstanding service! They went beyond expectations and handled everything on my behalf. I could relax while they worked for the best outcome.”
    — Shawnna

    Frequently Asked Questions About IRS Penalties

    Is interest relief available?

    Interest on waived penalties may be reduced or removed, but unpaid taxes continue to accrue interest until fully paid.

    Can I pay my tax penalty online?

    Yes, IRS penalties can be paid online via Direct Pay, debit/credit card, or the Electronic Federal Tax Payment System.

    Are tax penalties and interest deductible?

    No. Federal tax penalties and interest are not deductible.

    Can I pay my IRS penalties in installments?

    Yes, but an installment agreement with the IRS is required. Tax Defense Network can help set up a payment plan tailored to your situation.

    Just Minutes Could Save You Thousands — Start Your Free Consultation Today!