Missed the Oct. 15 tax deadline? Know the penalty rules

Every year, millions of taxpayers request a six-month extension, and some still miss the extended deadline. This year, that deadline is Oct. 15, 2026. Late-filing and late-payment penalties add up quickly, but there’s good news. The IRS now waives them automatically for many first-time late filers. Here’s what tax professionals need to know for 2026.

Start with the two main penalties

The IRS charges two separate penalties, both based on the unpaid tax:

• Failure to file: 5% per month, up to 25%
• Failure to pay: 0.5% per month, up to 25%

When both apply in the same month, the failure-to-file penalty drops to 4.5%, so the combined charge is 5%. Even one day late counts as a full month.

Oct. 15 starts the filing penalty clock

An extension gives clients more time to file, not more time to pay. The failure-to-pay penalty has been building since April 15, 2026. The failure-to-file penalty starts after Oct. 15, 2026.

For example, a client owes $2,000, then files and pays on Dec. 1, 2026:

• Failure to file: 4.5% × $2,000 × 2 months = $180
• Failure to pay: 0.5% × $2,000 × 8 months = $80

The total is $260, plus interest.

Past 60 days, minimum penalty applies

Returns filed more than 60 days late trigger a minimum failure-to-file penalty, the lesser of $525 or 100% of the unpaid tax. For the Oct. 15, 2026, deadline, that means any return filed after Dec. 14, 2026.

Say a client owes $600, then files and pays on Jan. 20, 2027. Under the monthly rules, the filing penalty would be $108 (4.5% × $600 × 4 months). Instead, the IRS charges $525. Add $30 for failure to pay (0.5% × $600 × 10 months) and the total is $555, plus interest.

Now’s the time to contact clients who filed extensions but still haven’t submitted their return, especially those approaching the 60-day mark. A quick reminder could save them hundreds in penalties.

Don’t forget interest

Interest on unpaid tax runs from April 15, 2026, and compounds daily. The IRS also charges interest on penalties. The rate adjusts quarterly and is 7% through Dec. 31, 2026.

Penalty relief is now automatic for many clients

In summer 2026, the IRS began transitioning from first-time abate (FTA) to Automatic Exemption from Penalty (AEP) for eligible tax year 2025 returns and later. During the transition, some qualifying taxpayers may still receive penalty notices and need to request FTA.

Under AEP, the IRS doesn’t assess failure-to-file or failure-to-pay penalties if clients meet the IRS’s three-year timely-compliance requirements. No request is needed. The IRS checks eligibility when it processes the return, then sends a notice.

Keep in mind:

• Clients still owe the tax and interest.
• AEP doesn’t cover the estimated tax penalty.
• If a client who should qualify gets a penalty notice, call the number on it.

Clients who don’t qualify can request reasonable cause relief with a written statement or Form 843, Claim for Refund and Request for Abatement. Serious illness or a natural disaster may qualify. Forgetting or lacking the money generally doesn’t.

Quick penalty reference for returns due in 2026

Action items for tax pros after the deadline

This is a perfect opportunity to reach out to clients who extended but haven’t yet filed. Send a reminder, estimate their penalty exposure and assess whether they qualify for first-time penalty relief.

• Contact extension clients who haven’t filed, especially before Dec. 14.
• Urge them to file now, even if they can’t pay.
• Review their three-year history to see whether AEP should apply.
• Set up payment plans for clients who can’t pay. The reduced 0.25% failure-to-pay rate generally applies to individuals who filed by the due date, including extensions, while an approved installment agreement is in effect.
• Check for disaster relief, which may postpone the deadline.

Pro tip: Clients who paid at least 90% of their tax by April 15 may avoid the failure-to-pay penalty through Oct. 15 if they pay the rest with the return.

Learn more in NATP’s article on how AEP works, and prepare for next season at Tax Season Updates, offered in person and online.

Bottom line: Late-filing penalties can easily exceed the cost of preparing the return. Don’t let clients wait until January to find out.