IRS announces inflation-adjusted tax penalties for 2025
The IRS has announced new inflation-adjusted tax penalties for 2025, impacting taxpayers, businesses, and tax professionals who file or pay taxes late or submit incorrect information.
These penalties – part of the IRS’s enforcement strategy to maintain compliance – are outlined for the upcoming tax season and emphasize timely, accurate filings to avoid costly fines.
Also read – What happens if you file taxes late
Overview of common IRS penalties
The IRS imposes a range of penalties to ensure compliance with US tax laws, including those for late filing, late payment, and incorrect information returns.
For 2025, these penalties have been adjusted due to inflation, increasing the financial stakes for non-compliant taxpayers and businesses.
Key types of IRS penalties
- Failure-to-pay penalty: 0.5% of unpaid tax per month, up to 25% of the total amount due.
- Failure-to-file penalty: 5% of unpaid tax per month, capped at 25% of the amount owed.
- Combined penalties: When both filing and payment are late, a combined monthly penalty of 5% (4.5% for late filing and 0.5% for late payment) is applied for up to five months.
If the full amount remains unpaid after five months, only the 0.5% failure-to-pay penalty continues, maxing out at 47.5% when combined.
Updated penalty amounts for 2025
Late-filing penalties
For individual taxpayers, the minimum penalty for returns filed over 60 days late has increased to $525 (up from $510 in 2024) or the full tax due, whichever is lower.
Business filers face increased penalties for missed deadlines as well:
- Partnerships: A late-filed 2025 return in 2026 incurs a penalty of $255 per month, up from $245 in 2024.
- S corporations: Similarly, S corporation late filings are penalized at $255 per month, reflecting the same increase.
Information return penalties
Businesses must file accurate information returns (such as Forms 1098, 1099, and W-2) on time or face penalties, which are also inflation-adjusted.
Penalties vary based on when corrections are made:
- Standard penalty: $340 per return for small entities (up from $330).
- Corrected within 30 days: $60 per return, with a maximum of $239,000 (up from $232,500).
- Corrected by August 1: $130 per return, capping at $683,000 (up from $664,500).
For intentional disregard, the penalty is the greater of $680 per return (up from $660) or 10% of the reported amount, with no maximum limit.
Penalties for tax professionals
The IRS also enforces penalties on tax professionals who do not fulfill their responsibilities.
While some penalties are not inflation-adjusted, several fines for common errors and omissions are now higher for 2025.
Tax preparer penalties
Penalties for tax preparers who fail to meet basic requirements for accuracy, documentation, and client transparency include:
| Tax Preparer Action | Penalty per Return | Maximum Penalty |
|---|---|---|
| Failing to furnish a client with a copy of the return | $65 | $32,500 |
| Failing to sign the return | $65 | $32,500 |
| Failing to retain a copy of the return | $65 | $32,500 |
| Negotiating a taxpayer's check | $650 per check | No Limit |
| Lacking diligence in determining credits eligibility | $650 per failure | No Limit |
These penalties underscore the IRS’s focus on ensuring accurate filings and deterring tax professionals from taking unreasonable positions in tax returns.
Interest and relief on tax penalties
Interest on unpaid taxes
Interest on unpaid taxes is calculated quarterly. For the fourth quarter of 2024, the rate for individuals is 8%, which is based on the federal short-term rate plus 3%.
Interest continues to accrue until the balance is fully paid, regardless of any penalties being reduced or removed.
Penalty relief options
Taxpayers with a history of timely filings and payments may qualify for First-Time Penalty Abatement if they experience an isolated late filing or payment situation.
Additionally, the IRS may waive penalties due to reasonable cause, though interest will still accumulate on unpaid taxes.
Passport revocation for serious tax debt
For international travelers, it’s essential to manage tax debts to avoid potential passport issues.
Under the FAST Act, the IRS can request the State Department to revoke, deny, or limit passports for those with “seriously delinquent” tax debt.
In 2025, this threshold is set at $65,000 (up from $62,000), highlighting the IRS’s commitment to securing outstanding tax payments.
Criminal tax penalties for evasion
For serious cases, the IRS can prosecute individuals or corporations criminally under USC §7201.
Tax evasion convictions can result in severe fines, imprisonment, and prosecution costs:
- Individual fines: Up to $100,000
- Corporate fines: Up to $500,000
- Prison time: Up to five years
The IRS’s criminal penalties emphasize the importance of compliance and deter deliberate tax evasion efforts.
Final thoughts
The IRS’s 2025 inflation-adjusted penalties reflect rising costs and increased emphasis on compliance.
With higher fines for late filing, late payment, and incorrect information reporting, it’s critical for both individual taxpayers and tax professionals to meet filing requirements accurately and on time.
Keeping up-to-date with these changes helps prevent costly penalties and ensures peace of mind with the IRS.