April 15th came and went. You didn’t file a return, and you didn’t file an extension. The window for avoiding penalties has closed, but the window for limiting them is still open. Here’s what’s actually happening with your account and what to do about it.
Two Penalties, Not One
When you miss the deadline without filing or extending, the IRS doesn’t just send one penalty. It sends two, and they run simultaneously.
- Failure-to-file: The failure-to-file penalty is the larger of the two: 5% of the unpaid tax for each month, or partial month, that the return is late, up to a maximum of 25%.
- Failure-to-pay: The failure-to-pay penalty is smaller, at 0.5% of the unpaid balance per month, also capped at 25%.
When both apply in the same month, the IRS reduces the failure-to-file penalty by the amount of the failure-to-pay penalty, so the combined monthly rate is 5% rather than 5.5%. They still both apply. The total penalty exposure for someone who neither files nor pays can reach 47.5% of the unpaid tax over time.
There’s also a hard threshold to know about: if your return is more than 60 days late, the IRS imposes a minimum failure-to-file penalty. For 2025 returns (filed in 2026), that minimum is the lesser of $525 or 100% of the unpaid tax. If you owe a small balance and keep waiting, you could end up paying more in penalties than in actual tax.
File Now, Even If You Can’t Pay
This is the most important thing to do after missing a deadline without an extension: file the return as soon as possible.
The failure-to-file penalty is roughly ten times higher per month than the failure-to-pay penalty. Filing stops the more expensive of the two penalties from continuing to accumulate. Not filing doesn’t buy you time. It just adds cost.
If you can’t pay the full balance when you file, pay whatever you can. The failure-to-pay penalty is calculated on the remaining unpaid balance, so reducing that balance reduces what accumulates going forward.
Payment Plans and Penalty Relief
If you can’t pay your full balance when you file, you have options and none of them require you to figure everything out at once.
The IRS offers a formal payment plan called an installment agreement that lets you pay your balance in monthly amounts over time. You can request one directly through IRS.gov. Setting one up also reduces the ongoing failure-to-pay penalty rate while the agreement is active, so it’s worth doing even if you can pay most of what you owe.
Pay whatever you can when you file. Penalties and interest continue to accrue on the unpaid balance, so reducing that number now reduces what compounds going forward.
If you haven’t had penalties in the prior three years, you may also qualify for first-time penalty abatement, an IRS program that can waive certain penalties for taxpayers with a clean compliance history. It’s not automatic, but it’s worth asking about when you contact the IRS to set up a payment plan.
The goal right now isn’t perfection. It’s forward motion.
If Your Business Income Passes Through to Your Personal Return
Where your business income gets reported determines which returns are late and what deadlines applied in the first place.
Sole proprietor or single-member LLC (SMLLC): Business income is reported on Schedule C, which is part of your personal tax return. One deadline (April 15), one set of late filing consequences.
Note that SMLLC owners may also have a separate LLC-level return or annual fee required by their state, typically filed alongside the personal return. If you’re unsure whether your state requires one, it’s worth confirming to reduce the risk of state-level penalties.
S Corp Status: The S Corp files its own separate business tax return, due March 15. That return produces a Schedule K-1, which reports your share of the business income and is required to complete your personal return. Your personal return should not be filed until you have a final K-1 in hand.
If your S Corp return was extended and hasn’t been finalized yet, your personal return should have been extended as well. If you’re in this situation, the business return comes first. Penalties for a late S Corp business return run separately from personal return penalties, and both need to be addressed.
The Next Step Is Simple
File the return. Pay what you can. Set up a payment plan if you need more time. Each of those actions independently reduces your exposure, and together they put your account in the best possible position going forward.
With over eight years in public accounting, Marissa has worked closely with small business owners to navigate tax strategy and compliance. At Collective, she translates complex tax concepts for self-employed individuals into clear, practical content—supporting them on their tax journey so they feel informed, confident, and empowered to make decisions for their business.