0.5% a month sounds gentle until it runs for four years next to compounding interest. Here's how the rate moves — down on a payment plan, up after a levy notice — and how to remove what's accrued.
IRC 6651(a)(2) charges 0.5% per month or part-month on tax that wasn't paid by the original due date — extensions don't move it — capped at 25%. The rate is modest; the danger is duration and company: it runs for up to 50 months, alongside interest, and jumps to 1%/month once a final levy notice ages ten days. On an installment agreement it falls to 0.25%/month — the IRS's built-in discount for getting on a plan.
Pay what you can now — the penalty is computed on the shrinking unpaid balance, so every dollar paid stops earning 0.5% monthly.
An approved installment agreement halves the monthly rate and blocks the 1% escalation.
First-time abatement or reasonable cause removes what already stacked up — and the interest charged on it.
After LT11/Letter 1058, the 10-day clock to the 1% rate is one more reason the CDP window matters.
Every notice page explains the deadline and drafts the response letter free — find yours.
Look up your IRS notice →0.5% of the unpaid tax per month or part-month, capped at 25%. It drops to 0.25%/month while an approved installment agreement is active, and rises to 1%/month ten days after a final levy notice. Interest runs separately on top.
It halves it — 0.25%/month instead of 0.5% — and stops the escalation to 1%. Combined with direct debit, a plan is usually the cheapest way to carry a balance you can't clear at once.
Filing late, by a factor of ten. If you can't pay, file on time anyway (or extend and file by October) — you'll owe 0.5%/month instead of 5%/month while you arrange the money.
Yes — same two grounds as failure to file: first-time abatement (prior 3 years clean) and reasonable cause. Since it keeps accruing until the tax is paid, the strongest sequence is: arrange payment, then request abatement of what accrued.