Penalty for tax evasion, non-payment of taxes or late payments vary according to the perceived and actual severity according to the IRS. Penalties can range from low interest added as a late payment penalty to several months of incarceration. A late payment penalty for tax overdue is usually 0.5% of 1% of the tax you owe for each month or part of the month for every month the debt remains unpaid. The time frame begins with the due date and ends only when the entire amount is paid or the maximum penalty of 25% is reached. Penalty abatement is possible if you have what is referred by the IRS as a "reasonable cause." If the taxes continue to slip into arrears, the IRS may issue a Notice of Intent to either levy or place a lien on your property. The penalty for tax evasion, however, is more severe. It comes with a hefty financial cost as well as imprisonment.