What Taxpayers Need to Know Before Filing

Tax penalties are not just a threat for late filers or people who owe back taxes. Several IRS penalties automatically increase based on inflation, meaning the dollar amount taxpayers may owe for certain violations continues to rise each year. These penalties apply whether a taxpayer intended to make a mistake or not, and the IRS treats many penalties as automatic assessments.

Understanding which penalties have increased helps taxpayers avoid unnecessary cost and prepare ahead of time.

Why Tax Penalties Increase Over Time

Federal law authorizes the IRS to adjust certain penalties annually for inflation. This affects penalties related to:

• late filing
• late payment
• information reporting
• failure to file returns
• inaccurate filings
• tax underpayments

Even small changes can result in significant costs for taxpayers who fail to file or respond promptly.

Late Filing Penalties

The IRS imposes penalties for failing to file a tax return by the deadline. Penalties generally increase when:

• tax is owed
• a return is filed late
• filing requirements are ignored
• documents are missing

Late filing penalties apply separately from late payment penalties.

Late Payment Penalties

Taxpayers who owe tax but do not pay on time may face additional penalties and interest. These penalties apply even if the return was filed correctly and on time. Failure-to-pay penalties are separate from failure-to-file penalties, so taxpayers can be charged both at once.

Failure to File Information Returns

Many penalties have increased for taxpayers who fail to file required information documents, including:

• Forms 1099
• contractor reporting
• certain business filings
• retirement plan reporting

Businesses, employers, contractors, and gig economy workers should pay close attention to rising penalties for missing or late information documents.

Accuracy-Related Penalties

If the IRS determines a tax return understates tax due by a significant amount, taxpayers may face accuracy penalties based on:

• negligence
• careless reporting
• substantial understatement of income
• improper credits or deductions

These penalties apply whether or not the taxpayer intended to reduce tax unfairly.

Penalties Apply Even If Filing Was Unintentional

Tax penalties do not require intent. Penalties can be issued even if:

• the mistake was unintentional
• you believed you filed correctly
• your numbers were estimated
• income documents arrived late
• employer forms were delayed

Once the IRS determines a penalty applies, the burden shifts to the taxpayer to show reasonable cause.

Larger Penalties Mean Delays Become More Expensive

Because penalties accumulate over time, a late return or late payment can quickly turn into a larger debt once increased penalty amounts are applied. This is especially true for taxpayers who:

• file late every year
• wait until collection notices
• avoid contacting the IRS
• ignore missing documents

The longer a return remains unfiled, the more penalties and interest accumulate.

How to Avoid Increased Penalties

Taxpayers can reduce the risk of penalties by:

• filing on time
• paying at least part of any balance due
• requesting an extension
• setting up a payment plan
• updating withholding amounts
• responding to IRS notices quickly

Even partial payment reduces penalties substantially.

IRS penalties increase over time due to inflation adjustments built into federal law. Taxpayers who file late, pay late, or fail to submit required information documents may face larger penalties now than in previous years. Filing on time and communicating with the IRS early is the simplest way to avoid rising penalties.