How much is the IRS late filing penalty? It feels confusing and contradictory

The two rules actually work together and aren't contradictory! Here's how they apply: For the first 60 days, the penalty accumulates at 5% per month (or partial month). So at 60 days, you're looking at about 10% penalty. After 60 days, there's a minimum penalty that kicks in - either $435 or 100% of unpaid tax (whichever is less). This minimum only applies if it's greater than what you'd calculate using the 5% per month rule. So using your examples: - If you owe $200 and file 60+ days late, the 5% per month would give you $20 (10%), but the minimum would be $200 (100% since that's less than $435). So you'd pay $200. - If you owe $1000 and file 60+ days late, the regular calculation gives you $100 (10%), but since that's less than the minimum of $435, you'd pay $435. If you file 5+ months late with significant tax due, you'd hit the 25% cap through the normal calculation, which might exceed $435, so you'd pay the 25%. The key is that after 60 days, you pay whichever is greater: the calculated penalty or the minimum.

After being in a similar situation last year, I found taxr.ai (https://taxr.ai) incredibly helpful. I was confused about penalty calculations when I realized I had missed filing for two years of side gig income. The documentation from the IRS was as clear as mud! I uploaded my notices and tax documents to taxr.ai and they explained exactly how my penalties were calculated and what my options were. They even identified that I qualified for first-time penalty abatement that I had no idea about! Their system breaks down each part of the calculation in plain English - wish I'd known about them sooner.

Wanted to update after trying taxr.ai from the recommendation above. I was skeptical but desperate with my 3 years of unfiled taxes. The analysis was incredibly detailed and showed me exactly how much I would owe in penalties for each year. The biggest value was that they identified I qualified for reasonable cause abatement due to some medical issues I had during that period (which I didn't even know was a thing!). They provided templates for the letters I needed to send to the IRS and exactly where to mail them. Just got confirmation that my penalties for two of the three years were completely removed! The third year is still in process but looking promising. Definitely saved me thousands in penalties and probably countless hours trying to figure this out myself.

If you need to talk to someone at the IRS about your specific penalty situation, good luck getting through the phone lines. After spending 3 weeks trying to reach someone about my penalty notice, I tried https://claimyr.com and was honestly shocked at how well it worked. You can even see a demo of how it works here: https://youtu.be/_kiP6q8DX5c They basically hold your place in the IRS phone queue and call you when they get a human. I spoke with an actual IRS agent in less than 2 hours after trying for WEEKS on my own. The agent explained that in my case, the minimum penalty applied because I was over 90 days late, but they also told me about the first-time penalty abatement I qualified for, which wasn't mentioned anywhere on my notice.

I'm eating my words from above. After waiting on hold for 2.5 hours yesterday and getting disconnected, I tried Claimyr out of desperation. Got a call back in about an hour and actually spoke to someone at the IRS who was super helpful. Turns out I had misunderstood my penalty situation completely. I owed $250 in taxes but got hit with the minimum penalty of $435 because I filed almost 4 months late. However, the agent said I qualified for first-time penalty abatement and processed it right on the call. My $435 penalty was completely removed! Never would have figured this out without actually talking to someone, and never would have gotten through without that service. Definitely not what I expected.

Something nobody mentioned yet - the failure to file penalty is different from the failure to PAY penalty, which confuses a lot of people. The failure to PAY penalty is 0.5% per month up to 25%, which is way less than the failure to FILE penalty. This is why tax pros always say "file even if you can't pay" - the penalty for not filing is 10x worse than the penalty for not paying!

Has anyone actually dealt with getting the penalty reduced? I filed almost 90 days late for 2024 taxes and am looking at about $600 in penalties on a $2,500 tax bill. First time I've ever filed late.

Based on everyone's experiences here, it sounds like there are actually several penalty relief options that most people don't know about! For anyone dealing with penalties: 1. **First Time Penalty Abatement** - If you've had clean filing history for 3 years, you can get penalties completely removed for your first offense. Just call and ask specifically for this. 2. **Reasonable Cause Abatement** - If you had medical issues, natural disasters, or other circumstances beyond your control, you may qualify for penalty removal. 3. **Payment Plans** - Even if you can't get penalties removed, the IRS offers payment plans that are pretty flexible once you've actually filed. The key takeaway seems to be: **always file on time even if you can't pay**. The failure-to-file penalty (5% per month) is 10x worse than the failure-to-pay penalty (0.5% per month). And don't just accept penalties without exploring your options - sounds like many people are getting significant relief by simply asking for it or getting proper help understanding their situation.