Receiving correspondence from the IRS can be scary. If the agency has information to share regarding your tax return, it generally doesn’t call or email taxpayers, but will send a notice or letter.
One particularly troublesome notice is Notice CP59. You’ll receive it if the IRS has no record that you filed your prior year personal tax return.
Maybe you were overwhelmed by a complex tax situation and didn’t know what to do. Maybe you knew you were going to owe and didn’t have the money to pay the taxes. Or maybe you did file, but the IRS simply hasn’t processed it yet due to internal backlogs or errors in your paperwork.
Whatever the situation, filing your taxes — or submitting proof to the IRS that you did file — in a timely manner is the first step to fixing this problem and potentially reducing the penalties you owe.
Being a smart taxpayer involves proactive, timely tax planning rather than rushing through your financial records last minute. In the long run, a few smart steps can prevent delays and save money.
The unexpected cost: How much are late filing penalties?
The IRS charges two separate penalties to negligent taxpayers:
- Failure-to-file: You accrue failure-to-file penalties for each month or partial month you fail to file your taxes.
- Failure-to-pay: Failure-to-pay penalties apply if you owe the IRS money, regardless of whether you’ve filed.
The IRS also charges interest on unpaid taxes and penalties owed. The date from which interest accrues depends on the type of penalty.
Even if you don’t have the money to pay your taxes, you can avoid failure-to-file penalties simply by filing your taxes (or an extension) on time.
Failure-to-file penalty costs
For individual and most business tax returns, failure-to-file penalties equal 5% of the tax due (less any tax paid on time and any available credits) for each month or partial month the return is late, up to a maximum penalty of 25%. If the return is more than 60 days late, the minimum penalty is 100% of the underpayment or the flat rate listed here for the relevant year, whichever is less.
Failure-to-pay penalty costs
If you file but don’t pay your tax bill, the IRS adds failure-to-pay penalties to your bill. These penalties can’t exceed 25% of your total unpaid taxes. The penalties normally accrue at a rate of 0.5% of your unpaid taxes for each month or partial month you’ve failed to pay. If you don’t pay your tax within 10 days of receiving a notice of intent to levy from the IRS, the failure-to-pay penalty rises to 1% per month.
The IRS can apply both penalties at the same time, but the failure-to-file penalty is reduced by the failure-to-pay penalty. In other words, if you’ve failed to pay your taxes by May 14, 2026, for instance, you’d owe a 4.5% failure-to-file penalty plus a 0.5% failure-to-pay penalty.
How to avoid fees and penalties from the IRS
Even if you’re facing what seems like insurmountable tax debt, you can reduce or avoid penalties by taking action. If you’re unsure how to proceed, you can enlist the help of a tax professional. But here are some basic steps to help you get started:
Timely filing
Simply filing your taxes on time can eliminate some penalties, even if you can’t afford to pay the bill right away.
“Failure‑to‑pay penalties are much lower than failure‑to‑file penalties,” said Evan Paul, managing partner of Paul Advisory and Legal Group, PLLC. If you know you can’t pay the balance owed, you should still make it a priority to file the return or extension on time, he added. That way, you’ll only be charged failure-to-pay penalties.
Filing your taxes, and knowing where you stand, can also help you regain a sense of control over the situation. “In many cases, the stress is not the dollar amount,” Paul said. “The stress is the uncertainty, the feeling that the issue hangs over them all the time.”
Request a filing extension (Form 4868)
If you need more time to get your tax paperwork in order, you can file an extension. This can buy you the time you need, without penalties, to file your taxes accurately.
File IRS Form 4868, either online or by mail, prior to April 15 to get an automatic tax extension until Oct. 15. However, an extension only gives you more time to file, not to pay. If you owe any taxes, you must pay the full amount by the original April 15 filing deadline or you’ll face failure-to-pay penalties and interest.
To avoid or reduce failure-to-pay penalties, make an estimated payment of what you believe you owe. If you overestimate, you’ll get a refund when you file. If you underestimate, at least you’ve reduced penalties and eliminated hefty failure-to-file fees. Because there’s no penalty for overpaying taxes, it’s generally better to overpay than underpay your estimated taxes if you have the cash.
There are three main ways to file an extension:
- Pay your owed taxes online through the IRS website and check the box that you’re paying as part of filing an extension. With this method, you don’t have to file a separate extension form.
- Use IRS Free File to electronically request an automatic extension.
- File Form 4868 online, by mail or through a tax professional.
Pay estimated taxes throughout the year
Independent contractors, self-employed people and small-business owners should pay estimated quarterly taxes to avoid underpayment penalties.
Due dates for estimated taxes in 2026-2027 are as follows:
- April 15, 2026
- June 15, 2026
- Sept. 15, 2026
- Jan 15, 2027
Generally, the total amount of estimated taxes you must pay to avoid underpayment penalties is either 90% of the taxes you owe for the current year or 100% of the taxes you owed for the previous year, whichever is less. You also won’t face underpayment penalties if you owe less than $1,000 in tax after subtracting withholdings and credits.
The rules are different for high-income taxpayers with an adjusted gross income (AGI) of over $150,000 (or $75,000 if married filing separately) on their previous year’s return. These taxpayers must pay either 90% of the taxes owed for the current year or 110% of the previous year’s taxes (whichever is lower).
Establish a payment plan
If you’ve filed by the deadline but can’t afford your tax bill in one lump sum, you can establish a payment plan to reduce your failure-to-pay penalty.
If you owe a small amount and believe you’ll have the funds soon, you can set up a short-term payment plan and pay the full balance within 180 days. It’s free to apply online, by phone, by mail or in-person, but you’ll still accrue penalties and interest until the balance is paid in full.
You can also apply for an installment agreement, which is a long-term payment plan. You’ll have to make an upfront payment, followed by monthly payments via direct debit, online through your IRS account or by phone. For individuals who filed their return on time, the late payment penalty is reduced to 0.25% per month while the installment agreement is in effect.
A Direct Debit Installment Agreement is the easiest and most low-cost way to establish an installment agreement. There’s a $22 setup fee online, which is waived for low-income individuals. If you apply by phone, mail or in person, you’ll pay $107 for setup.
If you prefer to make monthly payments on your own, without a direct debit agreement, expect to pay $69 for the online setup fee or $178 by phone, mail or in person. Low-income individuals qualify for a $43 fee, which may be reimbursed if certain conditions are met, according to the IRS website.
The fees listed above were last updated on April 11, 2025, according to the IRS, and may change in the future.
Reducing your risk of processing delays
Sometimes you file your taxes on time, but the IRS holds up your tax return due to an error. Processing delays could mean you won’t get your refund quickly. If you miscalculated what you owe, a processing delay could also mean failure-to-pay penalties.
A manual review gets the IRS to look more closely at your tax returns, which means they might scrutinize your deductions and write-offs.
Most errors that trigger a manual review and delay processing are basic and easy to avoid. The most frequent error is a discrepancy or misspelling in the name the taxpayer provides and the information in the IRS files, according to Paul. «This includes discrepancies in Social Security numbers, employer identification numbers, and actual legal name filings with the IRS,» he said.
He noted that this crops up most often with new tax entities, such as a gig worker starting a business, or in the case of trusts.
To avoid delays, make sure your name and Social Security Number or tax ID number match the information on the W-2 or 1099 forms issued to you before you file. Ensure you type everything correctly.
Other common errors are math mistakes, according to the IRS. To avoid this, use tax software that automatically does the math for you.
If you’ve been waiting a while and haven’t received your refund, you can use the IRS Where’s My Refund tool to track it, available online or through the IRS2Go app. You’ll avoid time-consuming phone calls to the IRS and get immediate answers regarding the status of your tax return.
When mistakes happen: Penalty abatement and relief options
In certain circumstances, the IRS offers penalty abatement, or relief from certain penalties by administrative waiver. There are two main avenues for penalty relief: first-time penalty abatement and reasonable cause.
First Time Abate
First-time penalty abatement is fairly straightforward, and can eliminate failure-to-file, failure-to-pay penalties, and failure-to-deposit penalties for individuals and some businesses.
You may be able to qualify for First Time Abate if you:
- Filed the same return type for the past three years before the tax year you received the penalty, AND
- Didn’t receive any penalties during the prior three years, or if any penalty you did receive was removed for an acceptable reason other than First Time Abate.
And meet additional criteria as described here.
You can apply for First Time Abate relief by calling the IRS, sending a written statement or filing Form 843, Claim for Refund and Request for Abatement. If your penalty is removed, the IRS also removes the interest charges related to that penalty.
Penalty relief for reasonable cause
If you don’t qualify for First Time Abate, you can apply for relief due to reasonable cause for certain penalties.
Justified causes, according to the IRS website, may include:
- Fire, natural disasters, or civil disturbances
- Inability to obtain records
- Death, serious illness or unavoidable absence of the taxpayer or immediate family
- Tax filing system issues
You would use the same form, 843, to file a request for Abatement with reasonable cause. You can also call the IRS to make your case.
If you qualify for First Time Abate, instead, the IRS will apply that abatement, instead.
Appealing the decision
Sometimes, the IRS will decline your request for penalty abatement. Maybe you didn’t provide enough evidence, or you mistakenly thought you qualified for an abatement when you don’t.
Taxpayers may believe they qualify for an abatement because they haven’t been subject to penalties in the past, Paul said, but they might have previously been late with a payment, entered a payment arrangement or were subject to penalties at the entity or trust level of taxation instead of on their individual return.
If you’ve submitted a written request for abatement and received a denial by mail from the IRS, you can appeal it within 30 days. Request the appeal in writing and mail it to the address on the letter where the IRS explained your appeal rights. Include any necessary additional documentation.
If your appeal is accepted and you’re invited to the Office of Appeals, you can represent yourself or enlist the help of an attorney, certified public accountant or IRS-enrolled agent.
The importance of organization and recordkeeping
Tax delays are typically not intentional. They often stem from a lack of organization and attention to detail. If you know you’ll owe taxes, you might be hesitant to file until you can pay the full amount due.
This is especially true for small business owners and 1099 independent contractors who may experience sudden success and be unprepared for the tax ramifications. But delays can happen to anyone with a change in their tax circumstances, including a marriage, divorce, new job or a large inheritance.
Keeping thorough records year-round and reviewing your withholding taxes or estimated quarterly payments in the case of small businesses and sole proprietors can help avoid unhappy April surprises.
“The most beneficial method is to have a year-round document inventory system for each entity or income source, as opposed to waiting for correspondence to arrive when taxes are due,” Paul said. “This is especially crucial for individuals with partnership, personal investment, or trust-based affairs when they know that K-1s tend to arrive late or with revisions.”
Small business owners, gig workers and investors can use apps to capture receipts and track mileage. You can use a spreadsheet to record income and expenses, or more robust budgeting or bookkeeping software.
Budgeting apps, like YNAB (You Need a Budget) or Rocket Money, can sync with your accounts to track income and expenses year-round. Small business owners might turn to QuickBooks for more robust invoicing and tracking capabilities.
“Sound documentation means avoiding last-minute filings, mandatory tax returns, and unnecessary vulnerability,” Paul said. “Pristine documentation also quickens processing with the IRS.”
Documentation to keep and how long to hold it
The IRS recommends holding onto detailed records, including proof of income and deductions, for at least three years. You may want to hold certain records for longer, up to indefinitely, in certain circumstances (such as if you file a claim for a loss from worthless securities, or if you don’t file a return).
Some of the paperwork to keep includes:
- Receipts and invoices for deductible expenses
- Mortgage interest statements
- Charitable contribution receipts or acknowledgements (if you itemize)
- Deductible healthcare expenses
- Forms 1098-T and 1098-E for education tuition and student loan interest
- 1099 and W-2 forms
You can also use the IRS website to get copies of your wage and income statements and copies of prior tax returns from the IRS website through your online account.
Bottom line
If you’ve kept detailed records, there’s no reason to fear April 15. E-filing and online account management make dealing with the IRS easier than it’s ever been.
If you’re feeling unsure about your tax situation, it’s wise to enlist the help of a professional tax accountant, ideally well before the filing deadline.
“Early compliance allows advisors to assess exposure and structure finances thoughtfully, rather than under the pressure of active collection activity,” Paul said.
Help your chosen tax professional help you by being upfront about your situation and providing accurate records. Also, make sure to leave plenty of time for them to prepare your paperwork before Tax Day.
