Question: Jennifer’s 80-year-old father, Robert Jorgensen, lives alone in his home. He qualifies as Jennifer’s medical dependent since he would be her tax dependent (qualifying relative) except for the gross income test ($5,200 for 2025). To help Robert age in place, Jennifer paid for the installation of a stair lift ($3,000) and a zero-threshold shower ($9,500). Medically necessary improvements to a home qualify as itemized medical deductions, provided they don’t increase the home’s fair market value (FMV). If they do, then the expense is reduced by the increase to FMV. While the stair lift does not usually increase basis, the zero-threshold shower adds $2,000 to the value of Robert’s home. What is Jennifer’s allowable deduction for Robert’s improvements on her Schedule A, Itemized Deductions (1040)?

Answer: Jennifer’s deduction on Schedule A is limited to the cost of the stair lift, $3,000, plus only part of the cost of the zero-threshold shower that did not increase the FMV of the home. The deductible amount of a medical improvement on Schedule A is the cost minus any increase in the property’s FMV due to the improvement [Reg § 1.213-1(e)(1)(iii)]. In this case, Jennifer will deduct only $7,500, or ($9,500 - $2,000). Her total deduction will be ($3,000 + $7,500) for a total Schedule A deduction of $10,500.

Additionally, $2,000 of the $9,500 zero-threshold shower will be added to the cost basis of Robert’s home, rather than being deducted on Jennifer’s Schedule A.

Every year, thousands of taxpayers file for a six-month extension. But what if you miss filing by that extended Oct. 15 deadline? The consequences can add up quickly (and painfully) in the form of late filing and payment penalties. Here’s how to calculate the damage and what tax professionals need to know for missed extension deadlines in 2025.

Start with the two main penalties

The IRS assesses two separate penalties: failure to file and failure to pay. They operate independently, but if they both apply in the same month, there’s a combined limit.

• Failure-to-file penalty: 5% of the unpaid tax per month, or part of a month, that the failure continues (up to a maximum of 25%).
  • If you’re filing more than 60 days past the deadline, penalties increase to the lesser of $525 or 100% of the unpaid tax.
• Failure-to-pay penalty: 0.5% per month, or part of a month, of unpaid tax (up to a maximum of 25%).
  • This drops to 0.25% per month if you’re on an approved installment agreement.

If both penalties apply in a single month, the IRS reduces the failure-to-file penalty to 4.5% so the total doesn’t exceed 5%.

Oct. 15 kicks off the filing penalty clock

Here’s what often confuses clients: if they filed for an extension and didn’t pay by April 15, the payment penalty has already been accruing for months. But the filing penalty only starts on Oct. 15 if the return still isn’t in.

Example:
A taxpayer owes $2,000 and files on Dec. 1, 2025:

• Failure-to-file (starting Oct. 16): 5% [0.05] × $2,000 × 2 months = $200
• Failure-to-pay (starting April 15): 0.5% [0.005] × $2,000 × 7.5 months = $75
• Total: $275, plus interest on both tax and penalties since April 15.

Past the 60-day mark? Penalties get steeper

Say your client owes $600 and doesn’t file until Jan. 20, 2026. Because that’s more than 60 days past the deadline, the IRS applies a minimum failure-to-file penalty: the lesser of $525 or 100% of the tax due.

Here, 100% of the unpaid tax is $600, so the IRS charges $525.

Add the failure-to-pay penalty:
0.5% [0.005] × $600 × 9.25 months = about $28

• Total penalties: $553, plus daily interest.

The penalty under the regular monthly rules (had the filing occurred before 60 days) would have been much lower (5% [0.05] × $600 × 3 months = $90).

Now’s the time to contact clients who filed extensions but still haven’t submitted their return, especially those approaching the 60-day mark. A quick reminder could save them hundreds in penalties.

Don’t forget interest

Interest compounds daily on unpaid taxes and penalties from the original due date. The rate adjusts quarterly. For now, it’s hovering around 8% annually, so it can add up fast over several months of nonpayment.

Clients may qualify for penalty relief

There are two potential ways out:

1. First-time penalty abatement (FTA):
   This is the easiest route and is often granted if the taxpayer qualifies. To be eligible, the taxpayer must:
   • not have had penalties in the past three years
   • be current on all required returns
   • have paid or arranged to pay any tax owed

The IRS can usually process an FTA request quickly and objectively, sometimes in just minutes over the phone, making it a low-barrier option for relief.

2. Reasonable cause:

This option is based on the taxpayer’s specific facts and circumstances, such as

• serious illness
• natural disasters
• major disruptions (for example, relying on a preparer who unexpectedly passed away mid-season)

This process is more challenging and subjective because reasonable cause requires demonstrating that the taxpayer exercised ordinary care and prudence. It often requires a written submission, can take longer for the IRS to review and may need to be appealed if initially denied.

What doesn’t count? Forgetting, ignoring IRS notices or simply not having the money to pay generally doesn’t meet the threshold for reasonable cause. Any willful neglect (meaning an intentional disregard of filing responsibilities) makes IRS penalties unavoidable.

Quick penalty reference (2025 returns)

Penalty Type	Rate	Maximum	Minimum (if 60+ days late)
Failure to file	5% per month	25%	$525 or 100% of tax owed
Failure to pay	0.5% per month (0.25% w/ IA)	25%	Still applies, no minimum
Combined penalty	Up to 5% per month total (failure-to-file reduced by failure-to-pay)	25%	Failure-to-file minimum still applies; failure-to-pay also continues separately

Action items for tax pros after the deadline

This is a perfect opportunity to reach out to clients who extended but haven’t yet filed. Send a reminder, estimate their penalty exposure and assess whether they qualify for first-time penalty relief.

• Offer to pre-fill Form 843, Claim for Refund and Request for Abatement, for penalty abatement. This form applies to both first-time penalty abatement and reasonable cause.
• If they can’t pay the balance due, help them apply for an installment agreement to lower the ongoing penalty rate.
• Emphasize the benefit of filing now, even if they can’t pay, because the filing penalty is the most expensive.

Pro tip: Clients who paid at least 90% of their tax liability by April 15 may avoid the failure-to-pay penalty through Oct. 15. Use this to calm panicked filers who are late but mostly paid up.

Bottom line: Penalties for late filing can easily exceed the cost of preparing the return. Don’t let clients wait until January to find out they owe hundreds more than expected.

In March 2025, Executive Order 14247, set in motion a sweeping modernization of how the federal government issues and receives payments, including tax transactions. With a clear goal to reduce reliance on paper checks and outdated systems, the order aims to improve efficiency and strengthen security across all federal payment processes.

While the order encompasses a broad range of federal disbursements and receipts, one provision will have a direct impact on taxpayers and tax practitioners this year. After Oct. 17, 2025, individuals will no longer be able to enroll in the Electronic Federal Tax Payment System (EFTPS) for the first time.

Why the shift away from paper and toward digital?

The executive order highlights several challenges with paper-based payment systems. According to the order, checks and money orders come with steep costs and inefficiencies.

• Higher fraud risk: Treasury checks are 16 times more likely to be lost, stolen or altered compared to electronic transfers.
• Growing mail theft: Since the COVID-19 pandemic, mail theft complaints have risen substantially, compounding the risks of paper-based transactions.
• Taxpayer expense: Maintaining physical infrastructure to handle paper records cost taxpayers over $657 million in fiscal year 2024.

To address these issues, the order requires federal agencies to transition fully to electronic payments by late 2025. This shift isn’t about introducing a central bank digital currency, which the order explicitly rules out. Instead, it focuses on existing digital tools such as direct deposits, debit and credit card payments, digital wallets and real-time payment systems.

What this means for EFTPS

The EFTPS has long been a trusted platform for making federal tax payments, particularly for individuals who prefer scheduling payments in advance or handling estimated tax obligations electronically. Beginning Oct. 17, 2025, individuals will no longer be able to establish a new EFTPS account. This means:

• Existing users can continue using the system as before.
• New enrollments will not be accepted after the cutoff date.
• Alternative options such as Direct Pay, IRS2Go or debit/credit card payments through approved processors, will remain available to all taxpayers.

The change primarily affects individuals who may want EFTPS access in the future but haven’t enrolled yet. Businesses and tax practitioners will not see the same level of disruption, but practitioners should be aware of the deadline to help clients avoid surprises.

Exceptions and accommodations

Executive Order 14247 acknowledges that not all taxpayers have equal access to electronic banking systems. However, the treasury has been directed to review and revise procedures for limited exceptions. These exceptions may apply to:

• Individuals without access to banking services or digital payment systems
• Certain emergency payments where electronic disbursement would cause hardship
• National security or law enforcement activities requiring non-electronic methods

For those who qualify, alternative payment options will be provided, ensuring no taxpayer is left without a way to meet obligations.

Preparing clients and taxpayers

For tax professionals, this upcoming deadline offers a clear action item: remind clients who rely on EFTPS to enroll before Oct. 17, 2025. This is particularly important for taxpayers who:

• Make quarterly estimated tax payments
• Prefer EFTPS for scheduling balance-due payments
• Value the ability to view a history of prior payments

By enrolling ahead of the deadline, taxpayers can secure continued access to a system they may want later, even if they don’t plan to use it immediately.

Other IRS payment methods

Even after the cutoff, taxpayers will still have reliable electronic options for making federal tax payments:

1. Direct Pay: a free online tool that allows direct payments from a bank account
2. IRS2Go app: a mobile-friendly option offering convenience and on-the-go access
3. Debit or credit cards: payments can be made through approved third-party processors (service fees may apply)

Each method supports the executive order’s broader aim of streamlining and securing digital payment processes.

Public awareness and transition support

The executive order also requires the Treasury to lead a comprehensive public awareness campaign to ensure taxpayers understand the changes. Federal agencies are tasked with providing guidance, helping individuals set up digital payment methods, and addressing access challenges for unbanked or underbanked populations. By coordinating with financial institutions, consumer groups and other key stakeholders, the Treasury wants to ensure a smooth and equitable transition.

Final thoughts

Executive Order 14247 represents a decisive step in modernizing the federal government’s payment infrastructure. For taxpayers, the most immediate takeaway is the Oct. 17, 2025, enrollment deadline for EFTPS. Those who value EFTPS should act now to secure access before it closes to new enrollees.

By alerting clients early, practitioners can help them avoid disruptions while preparing for a future where digital payments are the default. With clear communication and proactive planning, taxpayers can adapt seamlessly to this modernization initiative.