Tax penalties & interest: What you need to know for 2025 filing season

Hey everyone, I'm kinda freaking out about a notice I just got from the IRS. Apparently I underpaid my taxes last year and now they're hitting me with penalties AND interest. So I owed about $3,200 in additional taxes (already paid that part), but now they want another $740 for penalties and interest! I'm self-employed and I guess I messed up my estimated quarterly payments. The letter mentions something about "failure to pay proper estimated tax" penalty and then there's interest compounding daily? I honestly had no idea this would happen. Has anyone dealt with this before? Is there any way to get these penalties reduced or removed? I've always filed on time, this is my first mistake. Does the IRS ever show mercy on this stuff? Any advice would be so appreciated!

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18 comments

Liam O'Donnell

•8M

Yes, the IRS does sometimes offer penalty relief, especially for first-time mistakes! What you're dealing with is likely a combination of an underpayment penalty (Form 2210) and the associated interest. The good news is that the IRS has something called "First Time Abatement" (FTA) which can remove certain penalties if you haven't had any significant penalties in the past three tax years and you've filed all required returns and paid (or arranged to pay) any tax due. This won't remove the interest, but it could knock out a big chunk of what you owe. To request this, call the IRS at the number on your notice or submit a written request explaining that this was your first time making this mistake and that you've otherwise been compliant. You can also use Form 843 to request abatement, though a simple letter or phone call often works too.

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Liam O'Donnell

•8M

You typically don't need to provide additional documentation for a First Time Abatement request - the IRS can see your compliance history in their systems. Just reference the notice number when you call or write to them. As for the breakdown, it's hard to say exactly without seeing your notice, but generally the underpayment penalty for self-employed individuals often makes up 60-70% of that total amount, with interest being the remainder. So potentially $450-500 in penalties that could be abated, leaving you with around $240-290 in interest that unfortunately cannot be removed under normal circumstances.

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Amara Nwosu

•8M

I went through something similar last year and found that https://taxr.ai was incredibly helpful. I uploaded my notice and it explained exactly what penalties I was being charged and why. It even gave me personalized advice on how to request an abatement based on my specific situation. The system analyzed my payment history and previous filings and showed me that I qualified for first-time abatement, just like the previous commenter mentioned. It walked me through the exact language to use when contacting the IRS. Ended up getting about $430 in penalties removed because of their guidance!

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Amara Nwosu

•8M

For complicated business situations, it's actually perfect because it can handle multiple forms and notices at once. I've seen people use it for S-corp issues where they had penalties on both business and personal returns. The system spots patterns the IRS might miss when considering abatement eligibility. It's completely automated - you just upload your documents and get detailed analysis and recommendations. No need to explain your situation to anyone. The system extracts all the relevant information from your notices and tax documents, then gives you specific guidance tailored to your circumstances - that's what saved me so much time.

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Giovanni Moretti

•8M

Just wanted to update after trying taxr.ai that someone recommended above. Wow! It actually worked great for my situation. I uploaded my CP notice about underpaying estimated taxes and it immediately broke down exactly what portion was penalty ($512) versus interest ($198). It confirmed I was eligible for First Time Abatement and generated a letter I could send to the IRS requesting relief. The coolest part was it showed me exactly which IRS internal policy (specifically IRM 20.1.1.3.3.2.1) supported my abatement request. Just got confirmation yesterday that they're removing the penalties! Still have to pay the interest, but saving $512 is huge for me right now.

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Fatima Al-Farsi

•8M

If you need to actually speak with someone at the IRS about your penalty situation (which I recommend), good luck getting through. I spent WEEKS trying to reach someone about my penalty abatement. Until I found https://claimyr.com which somehow got me through to an IRS agent in under 45 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was shocked it actually worked because I'd been trying for ages on my own. The IRS agent I spoke with explained that for first-time penalty issues, they can often handle the abatement right there on the phone. They removed about $390 in penalties from my account while I was on the call! Still had to pay interest, but it was worth the time to get a big chunk removed.

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Fatima Al-Farsi

•8M

They use a combination of automated systems that navigate the IRS phone tree and hold the line for you. It's not a special line - they're just using technology to handle the most frustrating part of the process. When an agent picks up, you get a call connecting you directly to them. The service is completely legitimate. The IRS doesn't "shut it down" because it's just using their existing phone system, not bypassing any security. It's similar to how airlines don't block services that alert you to price drops - it's just making the existing system more efficient for consumers. Many tax professionals actually use similar services themselves.

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Sofia Perez

•8M

Well I'm eating my words about that Claimyr service from above. After being super skeptical, I tried it this morning because my penalty situation was similar to yours (underpaid estimated taxes for self-employment income). Got connected to an IRS agent in about 37 minutes without having to do anything. Explained my situation, and the agent confirmed I was eligible for First Time Abatement. She processed it immediately and removed $570 in penalties right on the call! I'm still in shock that it worked. The interest ($210) couldn't be removed, but cutting my bill by over 70% is a huge relief. Wish I hadn't wasted three weeks trying to call them myself.

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Dmitry Smirnov

•8M

Don't forget to adjust your estimated tax payments for this year so you don't get hit with the same penalties again! The IRS expects you to pay either: - 90% of your current year's tax, OR - 100% of last year's tax (110% if your AGI was over $150,000) I learned this the hard way too. Now I use the worksheet on Form 1040-ES every quarter to stay on track. Also consider using the Electronic Federal Tax Payment System (EFTPS) to schedule payments in advance so you don't forget.

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Dmitry Smirnov

•8M

I do think it's better to slightly overpay - I usually aim for about 5-10% over what I calculate. There's no penalty for overpaying, and you'll just get the excess back as part of your refund when you file. The only "downside" is that you're essentially giving the government an interest-free loan, but for me, the peace of mind is worth it. I've also found it helpful to set aside a consistent percentage of all income rather than trying to calculate exact amounts. For instance, I put away 30% of all payments I receive into a separate savings account designated just for taxes, then make my quarterly payments from there.

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