This burro isn’t worried about carrots or sticks, but when it comes to federal taxes, Uncle Sam uses both incentives and penalties to ensure we meet our filing and payment responsibilities. (Photo by Kay Bell)
As several of the previous parts of this year’s 10-part tax inflation series show, the U.S. tax code is full of tax breaks that encourage us filers to voluntarily submit our returns each year to the Internal Revenue Service.
But sometimes, tax carrots are not enough. When taxpayers ignore their responsibility to voluntarily file on time and accurately, the IRS has a potent stick: penalties.
The most severe punishments, leveled at individual taxpayers as well as the tax professionals they hire, come via criminal tax prosecutions. But for the most part, the IRS employs civil actions to get due taxes.
Many of us are familiar with the various fines and fees that are assessed when we mess up tax-wise. Yes, I am guilty here, too. Hey, nobody’s perfect.
These potential added penalty costs usually are effective in stemming questionable tax actions. After all, no one wants to pay the U.S. Treasury more than absolutely necessary. Many of the penalties also are adjusted when the IRS announces its overall annual inflation revisions.
This post, Part 9 of the ol’ blog’s 2026 tax inflation series, examines the coming changes to some common inflation-affected tax penalties.
Percentage filing and payment penalties: But before we get to those amounts that change due to the cost of living, it’s worth a quick refresher on general IRS penalties for filing and paying your taxes late. These are set percentages of unpaid tax that are charged if you don’t file or pay on time.
The IRS imposes a failure-to-pay penalty of 0.5 percent for each month or part of a month that tax goes unpaid, up to a total of 25 percent of the remaining amount due.
The penalty for filing late is steeper. The IRS assesses it at 5 percent of any tax due that isn’t paid as of its filing date, usually April 15. Remember, even if you get an extension to file your return as late as Oct. 15, you still must pay any tax due by the April deadline.
If you miss the due date for getting your return to the IRS, the late-filing penalty could go up, like the late-payment one, to as much as 25 percent of unpaid taxes.
Monthly combined charges: In both late (or non) filing or late (or non) paying situations, the fine starts adding up for each month or part of a month that the return is late. And where you face both a failure-to-file and a failure-to-pay penalty in the same month, the combined penalty is 5 percent (4.5 percent for filing late and 0.5 percent for not paying on time) for each month or part of a month that your return was late.
If you still haven’t paid after five months, the failure-to-file penalty will max out, but the failure-to-pay penalty continues until the tax is paid, up to 25 percent. And the maximum total penalty for failing to file and pay on time comes to 47.5 percent of the due tax (22.5 percent for late filing and 25 percent for paying late).
Just for good measure, there’s also a minimum late-filing penalty if you don’t get your Form 1040 to the IRS within 60 days of the due date. 2026’s inflation adjustments means that next year late filers — that’s 2026 tax year returns due in 2027 — could face a $535 penalty. That’s a $10 increase from the $525 late-filing penalty for 2025 returns.
However, the penalty could be less, depending on your tax bill. The tax code says the penalty for filing two months or more late is the lesser of the year’s penalty amount or 100 percent of the tax due.
Note, too, that if you don’t owe any federal tax, you generally do not have to worry about penalties. The assessment amounts are based on tax due, and any percentage of zero is zero.
Penalty relief, but interest still adds up: Taxpayers who have a history of filing and paying on time, but have run into a late tax situation for the first time might be able to have late filing and payment penalties abated.
This special treatment is for taxpayers who haven’t been assessed penalties for the past three years and who meet other requirements. You can find more on penalty relief at the IRS’ First-Time Penalty Abatement web page.
Regardless of the IRS penalty amounts, interest also accrues on unpaid taxes. The interest rate for individual taxpayers is the federal short-term rate plus 3 percent and is adjusted quarterly. For the fourth quarter of 2025 that began Oct. 1, the interest rate is 7 percent.
The IRS can remove or reduce penalties for reasonable cause, but interest charges just keep accumulating.
Business late-filing fees: The IRS deals with more returns from individual taxpayers than from business filers. But as with individuals, the tax agency also whacks companies that don’t file their business returns and other tax paperwork on time.
The penalty for a partnership tax return that is filed late next year will be $260. That’s a smidge up from 2025’s levy of $255.
That same $260 amount will be assessed for failure to file a 2026 tax year S Corporation return. Again, that’s a $5 bump from the current $255 penalty.
Information return penalties: The IRS also assesses inflation-affected penalties on businesses that do not file correct information returns and/or do not furnish correct payee statements. This includes the filing of, among others, Forms 1098, 1099, and W-2.
The penalty amounts are determined by average annual gross receipts for the last three years and detailed in IRS Revenue Procedure 2035-32. Just search for “failure to file certain information returns.”
Here’s a quick look at relatively smaller businesses’ potential penalties in these cases.
Entities averaging $5 million or less and that don’t provide the IRS required info will face a penalty of $340 per return. That’s the same as the current penalty. The total penalty amount that can accrue in the 2026 calendar year is $1,397,000. That is a jump from the current $1,366,000 calendar maximum.
When the required information return is corrected on or before 30 days after required filing date, the penalty in 2026 will be $60 (the same as in 2025) per return, with a $244,500 (up from $239,000 in 2025) maximum. If it’s corrected after 30th day, but on or before August 1, 2026, the penalty remains at this year’s $130 per return, with a $698,500 (up from 2025’s $683,000) maximum.
When the failure to file correct information returns is intentional, in most cases the penalty for 2026 will be the greater of $690 (a tad more than the $680 assessed in 2025) or 10 percent of the aggregate amount of items required to be reported. There is no maximum penalty in intentional disregard cases.
The IRS offers more details on information return penalties at its special web page, and in Internal Revenue Manual 20.1.7, Penalty Handbook, Information Return Penalties.
Tax pro penalties, too: Since so many of us pay for help with our filing, Uncle Sam assesses penalties on tax professionals, too.
The penalty amounts vary according to the situation and whether the IRS determines the incorrect filing was willful and/or based on the tax preparer’s use of an “unreasonable position.”
These amounts are set by statute and not subject to annual inflation adjustments. However, the IRS can calculate tax preparer penalties based on:
- Number of violations,
- Regulations violated,
- Rates of inflation, and
- Tax years involved.
The various tax preparer penalty scenarios are detailed on IRS.gov’s aptly named tax preparer penalties page.
The IRS goal in whacking tax pros for bad action when it comes to clients is, of course, to discourage the use of tax strategies that a preparer knew, or reasonably should have known, were not realistic. And to get the correct amount of tax due from filers.
More tax preparer penalties: In addition to these fixed penalties, however, the IRS can assess a variety of other fines that are adjusted annually for inflation when it determines the tax pro failed to complete these tasks.
The 2026 tax-year inflation adjusted amounts for returns to be filed in 2027, both per violation and maximum that can be assessed, are:
| Tax Preparer Action | Penalty per Return or Refund Claim | Maximum Penalty in a Calendar Year |
| Fails to furnish a client with a copy of the return | $65 | $33,000 |
| Fails to sign return. When a preparer is paid to do taxes, he/she must sign the client’s Form 1040. | $65 | $33,000 |
| Fails to furnish identifying number. This goes along with the signature mandate. | $65 | $33,000 |
| Fails to retain a copy of the return or other filing list. | $65 | $33,000 |
| Fails to file correct information returns. | $65 per return and item in the return | $33,000 |
| Negotiates a taxpayer’s check. This is a fine for a preparer who receives a taxpayer’s refund check, endorses it, and deposits it as a third-party check, even if the preparer and taxpayer have agreed to the process. This fine is aimed at return preparers who charge based on taxpayer refund amounts. | $665 per check | No Limit |
| Fails to be diligent in determining a filer’s eligibility for head of household filing status, the American Opportunity Tax Credit, the Child Tax Credit, and/or the Earned Income Tax Credit (EITC). | $665 per failure | No Limit |
Those $65 tax preparer potential penalties in 2026 for failure to furnish the client a return copy, sign the return, furnish an ID number, and retain a copy of the filing are the same as in 2025. However, the maximum penalty amounts next year are a $500 increase over this year’s $32,500 limit.
The failure-to-file correct information returns in 2026 is $5 more than this year’s $60 fine. The new maximum here also is a $500 increase over this year’s $32,500 limit.
The penalties in 2026 for tax preparer check negotiation and lack of diligence regarding a taxpayer’s status in claiming certain tax credits are both $15 more than the $650 that can be assessed in 2025.
Passport revocation: Finally, if you’re an international traveler, make sure you pay your taxes, especially if you owe a lot. In addition to owing financial penalties on the unpaid tax, there’s a physical penalty that could curb your global wanderlust
The Fixing America’s Surface Transportation Act, or FAST Act, that became law in December 2015 included a provision that authorizes the State Department to a to revoke, deny or limit passports for anyone the IRS certifies as having a seriously delinquent tax debt. The U.S. Supreme Court let that passport revocation authority stand by refusing last year to hear an affected taxpayer’s case.
When this tax law took effect in 2016, the document revocation trigger was $50,000 in unpaid taxes. Each subsequent tax year, the IRS has the option to adjust this amount upward if inflation allows.
As noted in the inflation series Part 7 on international taxes, the amount of a serious delinquent tax debt that could get your passport pulled in 2026 is $66,000. This passport-related debt amount adjustment is up from 2025’s tax debt trigger of $65,000.
Whether you’re a taxpayer handling your taxes on your own or a tax preparer, make sure you get the filings right and right on time (or sooner!) or you’ll end up paying the U.S. Treasury more in penalties.
Criminal fines, too: Although these inflation-adjusted penalties apply to non-criminal tax cases, the IRS also uses money as punishment for those convicted of criminal tax violations.
Under Internal Revenue Code §7201, any person who willfully attempts to evade or defeat taxes can be charged with a felony, with penalties including up to $100,000 in fines ($500,000 in the case of a corporation), up to five years in prison, and the costs of prosecution.
Obviously, you don’t want to break any tax laws that will get you in trouble with Uncle Sam, at either level. But some folks find themselves going from relatively small tax violations to major criminal tax trouble.
The end of inflation, or at least the tax series, for a while: This item also marks a brief hiatus in the series. I know, I know. The series already has been a bit sporadic this year, due in large part to the ol’ blog’s forced move to a new site. (Still working out bugs, but at least we have a home!)
Part 10 will be on the IRS deductible mileage adjustments. But if the IRS follows its usual schedule, those amounts likely won’t be announced for a few more weeks.
In fact, it likely will be December before the IRS issues its annual revisions to the optional per-mile rates you can claim as deductions in connection with business, medical or, in military relocation cases, moving miles.
When those per-mile amounts for 2026 are released, I’ll let you know in the pending-for-now Part 10 post. In the meantime, the table of contents below has links to the prior 8 parts (and related posts). It also is a good indicator of why I do this annual inflation update as a series.
- 2026 tax rates and income brackets
- Standard deduction amounts and itemized deduction considerations
- Credits and deductions, including adoption costs and assistance, Lifetime Learning Credit, Earned Income Tax Credit, educators’ expenses, interest on education loans and transportation fringe benefits
- Medical-related tax provisions, including contributions to a flexible spending account (FSA), health savings account (HSA), medical savings account (MSA), and eligible and eligible long-term care premiums
- Capital gains tax income brackets, estate and gift tax limits, kiddie tax, kiddie tax, and nanny tax
- Alternative Minimum Tax exemption amounts and One Big Beautiful Bill Act changes for 2026, along with the Social Security wage base increase amount and other pay-related taxes
- International worker tax issues, including foreign income and housing exclusions
- Retirement (e.g., IRA etc.) and pension plan contribution limits
- Penalties, for both individuals and tax pros, for things such as failure to file a timely 1040 or certain information returns
- Standard mileage deduction rates (This is the final component, since the IRS issues these adjustments and later in the year.)
Again, I know all y’all tax geeks want as much tax information as soon as possible. I get it. So, I really appreciate your patience when comes to my extended presentation of the 2026 tax inflation info.
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