The main difference between filing for a tax extension and filing your taxes late is financial impact. If the tax deadline passes and you haven’t filed, the IRS will charge a penalty based on the amount you owe. This penalty accrues as interest as long as you fail to file.

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Also, failing to file your taxes in a timely manner won’t directly trigger an audit, but it can increase the likelihood of extra scrutiny from the IRS.

Is it worse to file for an extension or to file your taxes late?

In almost every case, it is better to file for a tax extension than to file late.

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Filing for an extension comes with no extra cost or IRS scrutiny. The only potential drawback is the cost of paying an accountant to file the extension request for you. All extension requests are automatically granted by the IRS.

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On the other hand, if the tax deadline passes and you haven’t filed, you will begin to owe interest on any unpaid taxes.

What is the penalty for filing your taxes late?

If you are late filing your taxes, the IRS will charge you a failure-to-file penalty. (In the eyes of the IRS, you have failed to file if you have failed to meet the tax deadline.)

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• You’ll be charged 5% of your unpaid tax for each month (or partial month) your return is late.
• The maximum penalty is 25% of unpaid tax.
• If your return is more than 60 days late, you’ll be charged a minimum penalty. It’s the lesser of a fixed dollar amount ($525 for 2026) or 100% of the tax you owe.

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This penalty may be reduced or removed:

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• Paying some or all of the taxes you owe decreases the dollar amount you owe in penalties (by reducing the principal on which the 5% is charged)
• If you are owed a refund, you typically won’t be charged a penalty (but you need to file within three years in order to claim the refund)

What are the penalties for paying your taxes late?

The IRS will charge you a late payment penalty if you fail to pay your total taxes owed by the due date.

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• You’ll be charged 0.5% of the unpaid tax for each month (or partial month) your payment is late.
• The maximum amount is 25% of unpaid tax.
• You may receive a notice of intent to levy.

Notice of intent to levy

If you’re late paying your taxes, the IRS may send you a notice of intent to levy (CP504). This letter informs you that the IRS is prepared to levy your assets (including bank accounts and personal property) to cover your tax payments.

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If you have received a notice of intent to levy, you have 10 days to pay the amount owing. If you don’t make the payment, your monthly late payment penalty increases to 1%.

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Reducing your penalty with a payment plan

If you file your taxes on time but you’re unable to pay them, you may be able to set up a payment plan with the IRS. This reduces your penalty rate to as low as 0.25% per month.

What is the penalty for both filing and paying your taxes late?

If you failed to both file and pay your taxes, the penalties for both are combined.

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In a month where failure-to-file and late payment penalties both apply, the IRS will charge you 4.5% for failure to file and 0.5% for late payment, for a total penalty of 5% per month or partial month.

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Keep in mind that the failure-to-pay penalty maxes out after five months (the 25% cap), but the late payment penalty continues to accrue until the 25% cap is met.

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The maximum total penalty for failure both to file and pay your taxes is 47.5% of taxes owed (22.5% for late filing and 25% for late payment).

What are the downsides to applying for a tax extension?

The only downside to filing for a tax extension is that you must take time to complete and file Form 4868 (sole proprietors) or Form 7004 (S corporations) to request an extension.

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If you pay a professional to file a tax extension for you, expect to pay:

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• For Form 4868 (sole props): $50 to $100
• For Form 7004 (S corps): $75 to $250

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The exact fee you pay will depend on whether an accountant also figures your tax liability for you or bundles the filing with other tax services.

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Sole props can file Form 4868 online with IRS Free File or IRS Free Fillable Forms, or by making a payment with IRS Direct Pay (automatically requesting an extension).

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Filing for a tax extension does not:

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• Incur any extra charges from the IRS
• Increase your likelihood of extra scrutiny or trigger an audit
• Put you on any type of watch list or negatively impact your dealings with tax authorities

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In virtually every scenario, you are better off financially if you file for an extension rather than filing your taxes late.

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For a deeper dive, check out What Therapists Need to Know About Tax Extensions.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post. ‍

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‍Bryce Warnes is a West Coast writer specializing in small business finances.

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