If you owe the IRS tax money, it will calculate not only penalties but also interest. IRS penalties and interest are based on the amount you owe for taxes. There are 3 separate penalties. These are Failure to File, Failure to Pay Penalty and Interest. Each of these types is calculated differently. Failure to file is based on the period from your tax return deadline to the date you file your return. The rate is 5% per month up to a penalty maximum of 25%. Failure to pay penalty is based on the amount of income tax you owe. It is dated from the original payment deadline. The rate is 0.5% for each month you do not pay in full. There is no maximum limit. In the case of interest, the IRS bases the amount on the tax owing. It is calculated based on the balance due for each day you do not pay the amount in full. If you do not pay on time or in full, IRS penalties and interest can and do add up. Talk to a lawyer and your accountant to ensure you pay the right amount on time.