Despite the ongoing government shutdown that has furloughed nearly half of the IRS staff, tax filers who filed requests for tax filing extensions earlier this year are still legally required to file their 2024 income tax returns on October 15, 2025. Missing this critical deadline will draw heavy monetary penalties, with the IRS empowered to impose as much as 25% of the unpaid tax.
Understanding the two-tier penalty system
The IRS possesses a two-part penalty system that distinguishes between payment late and file late, both of which have distinct repercussions for taxpayers in the event of missed deadlines:
- Failure-to-File Penalty: This is the stricter of the two penalties, where taxpayers need to pay 5% of their tax owed, each month or part of a month that their return has not been filed. The penalty is built up monthly until the maximum of 25% of the total tax owed. For those who file more than 60 days after the October 15 deadline, the IRS imposes a minimum penalty of the lesser of $525 or 100% of the unpaid tax.
- Failure-to-Pay Penalty: Even those taxpayers who file their returns timely but do not pay their tax obligation also receive a penalty of 0.5% of the unpaid tax per month, but limited to 25%. This penalty begins to accrue from the original April 15 due date, regardless of whether an extension was filed.
How the combined penalty structure works
Where the two penalties are applied simultaneously, the IRS implements a twin penalty regime in order to prevent overpayment while maintaining effective enforcement. Where both the penalties are imposed in the same month, the failure-to-file penalty is reduced to 4.5% but the failure-to-pay penalty remains at 0.5%, creating an aggregate monthly penalty of 5%.
The highest aggregate penalty exposure is 47.5% of tax due: 22.5% for filing late and 25% for paying late. This top amount only occurs, however, when taxpayers are non-compliant for a long time over more than one category of penalties.
Real-world penalty calculations
A taxpayer owes $2,000 and files on December 1, 2025, having missed both the April 15 deadline for payment and the October 15 deadline for filing.
- Failure-to-file penalty: On and after October 16, the penalty increases at 5% each month for two months, to $200 (5% × $2,000 × 2 months).
- Failure-to-pay penalty: On and after April 15, the penalty increases at 0.5% each month for 7.5 months, to $75 (0.5% × $2,000 × 7.5 months).
- Total penalties: $275, plus compounding daily interest on both the initial tax due and the accumulated penalties.
The 60-day minimum penalty trap
Taxpayers are unusually penalized harshly if they file more than 60 days past the October 15 filing deadline. The IRS charges a minimum failure-to-file penalty of the lesser of $525 or 100% of the amount owed.
For example, a tax debtor owing $600 and paying on January 20, 2026 (more than 60 days late), would pay a $525 penalty under the minimum rule compared to only a $90 penalty under ordinary monthly calculations. This is a penalty risk increase of five times when going over the 60-day line.
Government shutdown impact on operations
The current government shutdown has significantly impacted IRS operations, with approximately 34,000 employees (46% of the workforce) being furloughed as of October 8, 2025. However, the agency clearly indicated that filing deadlines are not impacted even with reduced staff.
Critical systems continue functioning during the shutdown, including electronic filing systems and automated payment processing. Paper filing and correspondence processing are suspended, potentially resulting in delayed response for taxpayers requiring manual processing. The IRS has kept 39,870 employees to maintain core activities, handling predominantly 2026 filing season preparations.
Interest accumulation and long-term consequences
Aside from penalties, the IRS also charges daily compounding interest on every overdue tax bill starting from the original due date. The rate of interest is set quarterly as federal short-term rates plus 3 percentage points, now generating significant annual fees on unpaid balances.
Interest charges are not just applied against the initial tax liability but also on any imposed penalties, generating a compounding effect that greatly inflates overall amounts due over time. This daily accumulation continues until payers meet their full obligation, which includes principal, penalties, and interest that has accumulated.
Enforcement actions and collection procedures
While enforcement activities are suspended during the government shutdown, the IRS retains the authority to pursue collection action once operations resume. Taxpayers who do not comply may anticipate wage garnishment, bank levies, and asset seizures as the government seeks to recover unpaid tax liabilities.
The penalty for failure to pay is increased to 1% per month where taxpayers fail to respond in 10 days after receiving the IRS notice of intent to levy. The penalty rate continues to be high until the tax debt is satisfied or appropriate payment arrangements are entered into.
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