For the 2025 tax year, the Internal Revenue Service (IRS) has implemented an important change to the penalty structure for late-filed returns. The revised policy increases the minimum late-filing penalty to the lesser of the total tax due or $510 if the return is filed more than 60 days after the due date. This change affects individual taxpayers, corporations, and partnerships alike. The increased penalty is part of broader efforts by the IRS to encourage timely compliance and reduce the number of late returns filed each year.
Understanding the IRS Late-Filing Penalty
The IRS late-filing penalty, also known as the “failure-to-file” penalty, is assessed when a taxpayer fails to file their return by the due date, including extensions. It is distinct from the “failure-to-pay” penalty, which applies when a return is filed on time but the tax due is not paid by the deadline.
Historically, the failure-to-file penalty was calculated as a percentage of the unpaid tax: typically 5% of the unpaid amount per month, up to a maximum of 25%. However, for returns filed more than 60 days late, a minimum penalty also applies — regardless of how little tax is owed. That minimum has now increased under the 2025 rules.
What’s New in 2025?
For tax returns due in 2025 and filed more than 60 days late, the IRS has increased the minimum late-filing penalty. The updated penalty is now the lesser of:
- $510 (up from $485 in 2024)
- 100% of the tax due on the return
This means that if a taxpayer owes $400 in taxes and files their return more than 60 days late, they will be assessed a penalty equal to the full $400. However, if the tax due is $1,000, the penalty will be capped at $510, assuming the return is more than 60 days overdue.
Why Did the IRS Increase the Penalty?
The increase in the minimum late-filing penalty reflects several IRS priorities:
- Inflation Adjustment: The minimum penalty is indexed to inflation and is periodically increased to maintain its deterrent effect.
- Encouraging Timely Filing: A higher minimum penalty provides an incentive for taxpayers to file their returns on time, even if they are unable to pay the full amount of taxes owed.
- Reducing Tax Filing Delays: The IRS continues to work through backlogs and aims to reduce the number of late or unprocessed returns. This policy supports that effort.
Who Is Affected by This Penalty?
The increased minimum penalty applies to:
- Individual taxpayers filing Form 1040 or 1040-SR
- Corporations filing Form 1120
- Partnerships filing Form 1065
- Trusts and estates filing Form 1041
Regardless of entity type, the penalty kicks in when a return is filed more than 60 days after the original or extended due date.
Examples of the Updated Penalty in Practice
Example 1: Small Tax Due
Sarah owes $320 in federal income tax. She fails to file her return until 75 days after the due date. Because her return is more than 60 days late, she is assessed a penalty. Under the 2025 rule, the minimum penalty is the lesser of $510 or the $320 tax due. In this case, Sarah’s penalty will be $320.
Example 2: Larger Tax Due
Michael owes $1,200 in taxes but files his return 90 days late. His penalty will be capped at the minimum of $510 since 5% per month over 3 months equals 15% (or $180), which is less than $510. But the minimum rule applies, so he will owe $510.
Impact on Taxpayers
This update is particularly impactful for low-income taxpayers and small businesses who might miss filing deadlines due to oversight or lack of access to resources. The minimum penalty is substantial enough to create financial stress for those who owe small amounts but file late.
However, the policy also reinforces the need to file even if you can’t pay. Filing on time, even with unpaid taxes, helps avoid the larger failure-to-file penalty and minimizes interest accrual.
How to Avoid the Penalty
Here are several steps you can take to avoid the increased penalty:
- File your return on time, even if you can’t pay the full amount. The failure-to-pay penalty is less than the failure-to-file penalty.
- Use IRS Free File or e-file services to ensure timely and accurate submission.
- Request an extension using Form 4868 (individuals) or Form 7004 (businesses) before the deadline. Remember, extensions provide more time to file but not more time to pay.
- Seek penalty relief if you have reasonable cause or are a first-time offender. The IRS offers penalty abatement in certain cases.
First-Time Abatement and Reasonable Cause Relief
If this is your first time being penalized for late filing, you may qualify for first-time penalty abatement (FTA). The IRS allows this one-time relief if you:
- Have filed all required returns
- Have paid or arranged to pay any taxes due
- Have not been penalized for the past three years
Alternatively, you can request penalty relief by explaining your situation (e.g., natural disaster, illness, or IRS error) under the reasonable cause criteria.
Key Dates to Remember
- April 15, 2026: Filing deadline for individual returns (Form 1040) for tax year 2025
- March 15, 2026: Filing deadline for partnerships (Form 1065) and S corporations (Form 1120-S)
- 60-day late threshold: Returns filed after these dates plus 60 days will trigger the minimum penalty
Conclusion
The 2025 increase in the minimum late-filing penalty underscores the IRS’s continued emphasis on timely compliance. With the new minimum penalty now set at the lesser of $510 or 100% of the tax due, taxpayers must be diligent in meeting their filing deadlines. Filing even a single day past the 60-day mark can trigger this significant charge.
By understanding the rule, taking proactive steps to file on time, and seeking help when needed, individuals and businesses can avoid this costly penalty and stay in good standing with the IRS.