The failure-to-pay penalty is imposed under IRC §6651(a)(2) when tax shown on a filed return is not paid by the original due date. It accrues at 0.5% of the unpaid balance for each month or part of a month, capped at 25% in total. Unlike the FTF penalty, the FTP penalty has no minimum and no 60-day floor — it simply accrues until the balance is paid or the cap is reached.

The three FTP rates

The FTP penalty has three rate tiers depending on the taxpayer's collection status:

  • 0.5% per month — Standard rate from the due date until a levy notice is issued.
  • 1% per month — After the IRS issues a Notice of Intent to Levy under §6331(d) and the 10-day demand period expires.
  • 0.25% per month — Reduced rate while the taxpayer is in good standing on an approved installment agreement.
— Combined with Failure-to-File —

When both the FTF and FTP penalties apply for the same month, the FTF rate is reduced from 5% to 4.5% — so the combined monthly rate is 5% (4.5% FTF + 0.5% FTP). After the FTF cap is reached at 25%, only the FTP continues to accrue.

When the penalty applies

The FTP penalty applies to the unpaid balance of tax shown on any return — Form 1040, 1120, 1120-S, 1065 (allocable share), 941 — once the due date has passed. It also applies to additional tax assessed by audit, beginning on the date of the assessment notice if not paid within 21 days (10 days for amounts over $100,000).

How to abate the penalty

  1. First-Time Penalty Abatement (FTA). Available if the taxpayer was compliant for the three prior tax years. The IRS administratively abates the FTP penalty on request. See FTA.
  2. Reasonable Cause. If the failure to pay was due to circumstances beyond the taxpayer's control — illness, casualty loss, inability to obtain records — and ordinary business care was exercised. See reasonable cause.
  3. Statutory Exception (Kwong). For tax years due during the COVID-19 postponement window (January 2020 – July 2023), the IRS's failure to apply §7508A(d) means FTP penalties may have been improperly assessed.
IRS Code Section
IRC §6651(a)(2)
Penalty Rate
0.5% per month on unpaid tax
Rate (After Levy Notice)
1% per month on unpaid tax
Rate (Installment Agreement)
0.25% per month while in good standing
Maximum
25% of unpaid tax
Triggered By
Tax shown on return not paid by the due date
Abatement Grounds
FTA · Reasonable Cause · Statutory Exception

The recovery opportunity

Because the FTP penalty accrues for as long as the balance is unpaid, taxpayers who eventually paid (often years after the original due date) can find themselves with significant FTP penalty totals — much of which is recoverable under one of the three abatement grounds above. The interest charged on the abated penalty is refunded along with the penalty itself.