3 IRS Penalties That Could Cost You (Avoid Them With These Tips!)
Don't let surprise fees drain your bank account—know, prevent, and address IRS penalties before they hit.
Why This Matters to You
When it comes to taxes, it’s not just about how much you owe—it’s also about when and how you handle your responsibilities. If you file late, pay late, or don’t pay enough throughout the year, the IRS charges penalties and interest that can quietly grow over time.
This post breaks down the three most common IRS penalties for individuals—late filing, late payment, and underpayment—so you know what to expect, how to avoid them, and what to do if you’re already behind. Whether you’re a W-2 employee, side hustler, or someone navigating taxes for the first time, this is one of the most important areas to get right.
And if you want help making sure you're set up properly:
Let’s chat—book a consult at Akouson Financial.
🕒 Penalty #1: Filing Late (Failure to File)
What it is: File by that April 15 deadline—or October 15 if you got an extension—or face this penalty (irs.gov).
How it grows: 5% of what you owe per month (or part of a month), maxing out at 25% total (bradfordtaxinstitute.com).
Minimum fee: If you're over 60 days late, it’s at least $525 or 100% of what you owe, whichever is less (irs.gov).
Interest: Charged from the due date until it's all paid (irs.gov).
Bottom line: Even if you can’t pay, file on time—it cuts the penalty and looks better to the IRS .
⏰ Penalty #2: Paying Late (Failure to Pay)
What it is: You filed on time, but didn’t pay what you owed by April 15.
What it costs: 0.5% per month on what's unpaid, up to 25% total (irs.gov).
If you're on a payment plan, that drops to 0.25% per month (irs.gov).
Reminder: An extension to file does not give you more time to pay (irs.gov).
Interest: Added daily on both tax and penalties (% compounded daily, but rate is set quarterly).
📌 Tip: You can make payments online via IRS Direct Pay (bank account), debit/credit cards, or digital wallets. Even a partial payment before April 15 reduces your penalties.
💸 Penalty #3: Underpaying Estimated Tax
This one kicks in when you're not covering enough tax throughout the year—common for freelancers, gig earners… and sometimes even W-2 folks with one-time payments.
How to avoid it:
Owe less than $1,000 after credits, or
Pay at least 90% of this year's total tax, or 100% of last year's (110% if your AGI is over $150k) (irs.gov, irs.gov).
When it hits: If you fail the above 2 points, the IRS charges interest + an underpayment penalty .
📦 One‑time income alert: Bonus payments or RSUs are taxed at a flat 22% rate, which may be too low for your bracket—resulting in underpayment penalties later.
What to do:
Track that income.
Use the IRS online payment tool or Form 1040-ES to make quarterly payments.
Or book a session with me and I’ll calculate your safe payments—often saving you triple digits in fees.
🌐 Penalty Relief & Disputes
If you slipped up, you might still have options. The IRS may reduce or remove penalties if you have:
Reasonable cause (like illness or disaster)
First-time abatement eligibility
Just follow the appeal instructions on IRS notices (irs.gov, irs.gov, irs.gov, taxpayeradvocate.irs.gov).
Note: Even if penalties are removed, interest stays until everything’s paid.
✅ Final Takeaway: Don’t Let Fees Pile Up
Missing deadlines or underpaying can snowball into serious costs:
Filing late = up to 25% penalty
Paying late = up to 25% penalty + daily interest
Underpaying = penalty on top of interest for any missed quarters
But the fix is simple: file on time, pay online by April 15 (or in installments), and make smart estimated tax payments.
Need help setting it all up?
👉 Schedule a consult at Akouson Financial. We’ll make sure you're on track—and keep your wallet and your sanity intact.
Disclaimer:
The information provided in this blog is for general educational purposes only and should not be construed as tax, legal, or financial advice. Every individual’s situation is unique, and you should consult a qualified tax professional or financial advisor before making decisions based on this content. Akouson Financial and its representatives are not responsible for any actions taken based on the information provided herein.