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Penalties & Interest: Every Guide, In One Place

Penalties and interest can double a tax debt. These guides cover how they're calculated and the abatement options that can remove them.

Failure to file, failure to pay and failure to deposit penalties can be removed through First Time Abate or the new Automatic Exemption from Penalty if you have a timely compliance history, and most other penalties, including accuracy-related and information return penalties, can be considered for removal based on reasonable cause. Interest tied to a penalty is reduced or removed only when that penalty is.

Updated August 17, 2026

Key takeaways

• By law the IRS cannot remove or reduce interest unless the penalty it relates to is removed or reduced first.
• First Time Abate covers failure to file, failure to pay and failure to deposit penalties for taxpayers with three years of timely compliance history.
• Reasonable cause is decided case by case; the IRS lists fires, natural disasters, inability to get records, and serious illness as examples.
• Lack of funds by itself is not reasonable cause, and reliance on a tax professional generally does not excuse a late filing or payment.
• If the IRS cannot approve relief over the phone, you can request it in writing using Form 843, Claim for Refund and Request for Abatement.

Which IRS penalties can be removed or reduced?

The IRS charges different penalties for different failures, and the relief route depends on which penalty you were charged. Failure to file, failure to pay and failure to deposit penalties are the types the IRS lists as eligible for administrative relief under First Time Abate or the new Automatic Exemption from Penalty, regardless of amount. Separately, the IRS says it may remove or reduce some penalties if you acted in good faith and can show reasonable cause. That path can cover failure to file and failure to pay penalties, accuracy-related penalties, and information return penalties.

Some penalties sit outside these routes. Reasonable cause does not apply to certain penalties such as the estimated tax penalty, which has its own process for individuals and corporations. Administrative relief is not available for returns filed once or infrequently, for the Daily Delinquency Penalty, or for information reporting that depends on another filing.

If you believe the penalty itself is wrong rather than excusable, that is a dispute, not relief. Call the toll-free number at the top right corner of your notice or letter, or write explaining why the IRS should reconsider, and send supporting documents to the address on the notice.

How do First Time Abate and Automatic Exemption from Penalty work?

First Time Abate (FTA) has been the most common administrative penalty waiver, and it applies to individuals and businesses with three years of timely compliance history. FTA is not automatic: you must contact the IRS, either by calling the toll-free number in the top right corner of your notice or by sending a written statement or Form 843 to the address in the Form 843 instructions. You do not need to name FTA or send supporting documents, because the IRS reviews your account to see whether you meet the requirements.

FTA is transitioning to Automatic Exemption from Penalty (AEP) starting Summer 2026. Under AEP, if you file or pay late in the current year but timely filed returns and paid tax due for the three prior years, or 12 consecutive quarters for quarterly filers, the penalty is not assessed at all. AEP is applied when your original return finishes processing and covers Forms 1040, 1065, 1120, Forms 940, 941, 943, 944, 945 and Form CT-1. You receive a letter explaining the relief and do not need to respond. You remain liable for unpaid tax, interest, and any other penalty not covered by AEP.

How do you request penalty relief for reasonable cause?

Start by calling the toll-free number at the top right corner of your notice with your documentation ready. The IRS may reduce or remove some penalties over the phone. Have the notice, the penalty you want relieved, and the reasons you think it should be removed. If you ask for reasonable cause but the IRS determines you qualify for First Time Abate, it will apply that instead. If neither applies or relief cannot be approved by phone, you can request relief in writing with Form 843, Claim for Refund and Request for Abatement.

Explain what happened and when, how the situation prevented you from filing or paying on time, and what attempts you made. Useful supporting documents include:

• Hospital or court records, or a doctor's letter confirming illness or incapacitation with start and end dates
• Documentation of natural disasters or other disturbances
• Copies of relevant written letters and responses
• Copies of receipts, forms or other documentation

If the IRS denies your request, it sends a notice or letter, and you can review penalty appeal eligibility for next steps. If you cannot pay in full, paying what you can now and applying for a payment plan may reduce future penalties.

First Time Abate compared with Automatic Exemption from Penalty

What the IRS says

“We may be able to remove or reduce some penalties if you acted in good faith and can show reasonable cause for why you weren’t able to meet your tax obligations.”

— IRS, Penalties, IRS — Penalties https://www.irs.gov/payments/penalties

Frequently asked questions

Can the IRS remove the interest on my balance?

By law the IRS cannot remove or reduce interest unless the penalty it relates to is removed or reduced. When the IRS reduces or removes a penalty, it automatically reduces or removes the related interest. Interest increases the amount you owe until you pay your balance in full, so paying the penalty in full stops future penalties and interest from adding up.

What happens if my request for penalty relief is denied?

The IRS sends a notice or letter telling you it denied your request, and you can review penalty appeal eligibility for next steps. You may also dispute the penalty by calling the toll-free number at the top right corner of your notice or writing a signed letter with supporting documents to the address on the notice. Follow any deadlines or instructions the notice gives.

Does reasonable cause apply to the estimated tax penalty?

No. The IRS states that reasonable cause does not apply to certain penalties such as the estimated tax penalty. To reduce or remove that charge, you follow the separate guidance for underpayment of estimated tax by individuals or underpayment of estimated tax by corporations. Reasonable cause reasons otherwise depend on the type of penalty and the Internal Revenue Code rules for it.

Which returns qualify for Automatic Exemption from Penalty?

AEP covers Forms 1040, 1065 and 1120, Forms 940, 941, 943, 944 and 945, and Form CT-1, beginning with 2025 tax year returns and 2026 quarterly returns. It is not available for returns filed once or infrequently, the Daily Delinquency Penalty, or information reporting that depends on another filing. If a notice shows a penalty you think AEP covered, contact the IRS.

Which penalties & interest guide do I need?

All 16 Clarity guides on penalties & interest, newest research first. Each one covers a single situation end to end.

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Which penalties & interest guide do I need?

All 16 Clarity guides on penalties & interest. Each one covers a single situation end to end.

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