The Penalty for Owing Two Years of Federal Taxes in a Row

by David Carnes ; Updated July 27, 2017
The IRS can auction your property for failure to pay taxes.

If you have failed to pay your federal income tax for two years in a row, the Internal Revenue Service will add penalties and interest to your debt. Eventually, it will take collection action against you. Several different types of penalties apply depending on your circumstances. If you contact the IRS, in most cases they will be willing to compromise with you rather than begin collection action.

Failure to File, Failure to Pay

The penalty for failure to file a federal income tax return is 4.5 percent of the amount due per month or part of a month that you are late, capped at 22.5 percent of the amount you owe. The penalty for failure to pay your taxes is 0.5 percent per month or part of a month that you fail to pay, capped at 25 percent of the amount you owe. If your return is filed at least 60 days late, however, a minimum fine will apply -- the lesser of $135 or 100 percent of the amount you owe. If you fail to respond to several notifications, the IRS may raise your failure-to-pay penalty to 1 percent per month.


The IRS will also assess interest against your unpaid taxes. As of the time of publication, the rate was equal to the federal short-term interest rate plus 3 percent. Interest is simple, not compound, but is not capped the way penalties are. It is often cheaper to borrow money to pay your taxes than allow your debt to accumulate interest at the IRS rate.

Other Penalties

If your tax delinquency arose because you under-reported your tax due, you may be liable for additional fines. If you underestimated your taxes by at least $5,000 or 20 percent of the amount due, the IRS may consider you negligent and fine you 20 percent of the overdue amount. If it considers your return to be frivolous -- if, for example, it doesn't contain enough information to calculate your taxes, the IRS could fine you $500. The IRS has the power to place a lien against all your property to secure your tax debt, and to auction your property.


You may seek an installment payment plan from the IRS by filing Form 9465. If you owe more than $25,000, you will also have to file Form 433-C and allow the IRS to examine your finances. Penalties will continue to accumulate, but the IRS will not take collection action as long as your payments are current. You can also discharge some tax debts in bankruptcy. If the IRS places a lien against your property, you are entitled to a hearing. In some cases, you may appeal an adverse decision to the federal tax court.

About the Author

David Carnes has been a full-time writer since 1998 and has published two full-length novels. He spends much of his time in various Asian countries and is fluent in Mandarin Chinese. He earned a Juris Doctorate from the University of Kentucky College of Law.

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