Abatement
The IRS removing a penalty after the fact, via first-time abatement, reasonable cause, or IRS error. Interest that accrued on an abated penalty is removed with it.
Accuracy-related penalty (IRC §6662)
A 20% penalty on tax understated through negligence or a substantial understatement; the usual penalty attached to audit and CP2000 assessments.
Annualized-income method
An alternative Form 2210 computation (Schedule AI) that matches required installments to when income actually arrived. It often shrinks the penalty for seasonal or lumpy income.
CP2000
The IRS "underreporter" notice proposing extra tax when reported income doesn't match W-2/1099 data on file. It commonly arrives with the accuracy-related penalty.
Estimated tax
Quarterly prepayments of income tax required when withholding won't cover what you owe. Underpaying triggers the §6654/§6655 penalty. See safe harbors.
Extension (Forms 4868 / 7004)
Six extra months to file, never to pay. The late-payment penalty and interest still run from the original due date.
Failure to file (IRC §6651(a)(1))
5% of unpaid tax per month (or part-month) the return is late, capped at 25%; reduced to 4.5% in months where failure to pay also applies; minimum penalty after 60 days ($525 for returns due in 2026).
Failure to pay (IRC §6651(a)(2))
0.5% of unpaid tax per month (or part-month) from the original due date until paid, capped at 25%. Halved to 0.25%/month while an installment agreement is active; raised to 1%/month after a levy notice.
First Time Abate (FTA)
An administrative waiver removing failure-to-file, failure-to-pay, and failure-to-deposit penalties for taxpayers with a clean prior three years. How to request it.
Hot interest
The elevated corporate rate (federal short-term rate + 5 instead of + 3) on corporate underpayments over $100,000, starting after an IRS 30-day letter.
Installment agreement
An IRS payment plan. While active, the failure-to-pay rate drops to 0.25%/month; interest continues at the normal rate.
IRS Direct Pay
The IRS's free bank-transfer payment tool (irs.gov/payments). Paying a shortfall right away, any day of the year, stops penalties and interest from growing on that amount.
Per-owner penalty (IRC §6698 / §6699)
The late-filing penalty for partnerships and S corporations: a fixed dollar amount ($255 for returns due in 2026) per owner per month, up to 12 months, regardless of tax owed. Full guide.
Reasonable cause
Penalty relief for circumstances beyond your control, like serious illness, disaster, destroyed records, or reliance on written professional advice. It has to be documented.
Required annual payment
The amount you had to pay in during the year to owe no estimated-tax penalty: the smallest of the applicable safe harbors.
Safe harbor
A threshold that eliminates the estimated-tax penalty: 90% of current-year tax, or 100%/110% of prior-year tax (corporations: 100%/100%).
Underpayment rate (IRC §6621)
The interest rate on unpaid federal tax: federal short-term rate + 3 points, reset quarterly, compounded daily. Currently 7%. Full history here.