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.