Form 720 Late Filing and Payment Penalties
A Form 720 penalty can come from several failures, including filing late, paying late, depositing wrongly, or keeping collected tax. The Form 720 instructions cover only part of this. They name the deposit risk and the trust fund recovery penalty, and they tell you how to answer a notice, but they print no percentage for a late return. To be exact about what the IRS says and where, this page keeps those sources apart.
If your concern is only the annual health plan fee, read the guide to PCORI late filing. This one covers Form 720 as a whole.
Which penalties do the Form 720 instructions state?
| Failure | What the IRS says | Where |
|---|---|---|
| Not depositing as required and paying with the return instead | You may be subject to a penalty. No percentage is given | Form 720 instructions, line 10 |
| Air, communications, or indoor tanning tax collected but not paid over, or willfully not collected | Trust fund recovery penalty equal to the full unpaid tax | Form 720 instructions, page 2 |
| Failing to register or reregister when required, unless due to reasonable cause | $10,000 for the first failure, then $1,000 each day after | Pub. 510, chapter 15 |
| Excessive refund claim for certain fuel uses, without reasonable cause | The greater of two times the excessive amount or $10 | Pub. 510, chapter 15 |
Pub. 510 also says penalties and interest may result from filing late, paying late, failing to file, failing to make deposits, depositing late, failing to keep adequate records, and filing false or fraudulent returns. It gives no percentages for those in chapter 15. Fuel filers have one more, covered in the dyed diesel penalty post.
We don’t quote a percentage for late deposits here, because none of the IRS sources we used states one. If you receive a notice, the amount on it is what you respond to.
What percentages apply to late filing and late payment?
The Instructions for Form 7208 do state rates. Form 7208 covers the stock repurchase tax, which is reported on Form 720 as IRS No. 150, so these words are written for Form 720 filers with that tax.
| Item | Amount | Maximum |
|---|---|---|
| Late filing of return | 5% of the unpaid tax for each month or part of a month the return is late | 25% of the unpaid tax |
| Late payment of tax | 1/2 of 1% of the unpaid tax for each month or part of a month it isn't paid | 25% of the unpaid tax |
| Interest | A rate determined under section 6621, on taxes paid late and on penalties for failure to file, negligence, and fraud, from the due date to the date of payment | None stated |
Under those instructions, the late filing and late payment penalties won’t be imposed if you can show the failure was due to reasonable cause. Other penalties may be imposed for negligence and fraud.
A worked example, with the assumptions stated
Everything here is made up. Assume a business has a $4,000 balance due on its July to September 2026 Form 720, with no deposits required. The due date is Monday, November 2, 2026. It files and pays together on January 15, 2027. We also assume the Form 7208 percentages above apply to this return, as the Form 720 instructions print none of their own.
- Count the months. November 2 to December 2 is one month. December 2 to January 2 is a second. January 2 to January 15 is part of a month, which counts. That makes 3.
- Late filing. $4,000 x 5% x 3 = $600.
- Late payment. $4,000 x 0.5% x 3 = $60.
- Add them. $600 + $60 = $660, plus interest from November 2, 2026.
Treat that as an illustration and not a bill. The sources we used don’t say how the two penalties interact when they run in the same month, and they don’t give an interest rate. The IRS’s notice sets the actual amount. The arithmetic also shows the shape of the problem: the filing penalty is ten times the payment penalty each month, and would reach its $1,000 cap in month five. Filing on time even if you can’t pay everything avoids the larger of the two.
Why does the trust fund recovery penalty stand apart?
This penalty is different in kind, because it can reach people. It applies to communications, air transportation, and indoor tanning taxes. It equals the full unpaid tax and may be imposed on all persons the IRS determines were responsible for collecting, accounting for, and paying over these taxes and who acted willfully.
A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an employee of a sole proprietorship, an accountant, or a volunteer director or trustee. It may also include someone who signs checks or has authority to spend business funds. “Willfully” means voluntarily, consciously, and intentionally, and someone who knows the required actions aren’t taking place acts willfully. Pub. 510 adds that paying other business expenses instead of the taxes is willful behavior. If you run a salon or a charter operation, the indoor tanning tax and air taxes are the ones to watch.
How do you raise reasonable cause?
The order matters, and it surprises many filers.
- File the return without any explanation. The instructions say not to include one when you file.
- Wait for a penalty notice, if one comes.
- Reply to that notice with your explanation. The IRS will then determine whether you meet its reasonable-cause criteria.
The sources don’t list what the IRS accepts as reasonable cause, so we won’t guess. Errors the IRS itself caused follow a separate route: Form 843 is the form for requesting abatement of interest due to IRS errors or delays, or of a penalty due to erroneous IRS written advice.
What should you do if you can’t file or pay on time?
- Can’t pay in full? File anyway and pay what you can. If you qualify, you can apply online for an installment agreement when you owe $25,000 or less in combined tax, penalties, and interest ($50,000 for individuals) and have filed all required returns. Apply at IRS.gov/OPA.
- Behind on deposits? Read the due date schedule now. Pub. 510 warns that a business that doesn’t make deposits as required may have to file monthly or semimonthly.
- Found an error in a return you already filed? Form 720-X is the correction form. See the Form 720-X guide.
The next return due dates are Monday, November 2, 2026, and Monday, February 1, 2027. To file Form 720 online ahead of a deadline, EasyFile720 offers guided filing from business details through to submission, with rates built in and validations that catch common mistakes before you submit. You get an electronic acknowledgment from the IRS once the return is accepted. Filing online doesn’t remove a penalty that has already arisen, and any notice reply goes to the IRS. An account is free to create, and you pay $39.95 per filing when you file.
FAQ
Do I owe a penalty if I file late but owe nothing?▼
The percentages in the Form 7208 instructions are figured on unpaid tax, so with no unpaid tax that calculation gives zero. Filing is still required when the test is met, and penalties are determined by the IRS.
Should I attach a letter explaining why I am late?▼
No. The Form 720 instructions say not to include an explanation when you file. If you later receive a penalty notice, reply to the notice with your explanation.
Is there a penalty when the balance due is under $1.00?▼
The instructions say you don't have to pay if line 10 is under $1.00, and the sources we used describe no penalty specific to that amount.
Does interest stop if the IRS accepts reasonable cause?▼
The sources we used don't say. The Form 7208 instructions describe reasonable cause as a way to avoid the penalties, and describe interest separately.
File Form 720 online
Create a free account with no credit card and build your return. You pay $39.95 only when you file. EasyFile720 is an IRS-authorized e-file provider, and you get an acknowledgment when the IRS accepts your return.
Sources: Instructions for Form 720 (Rev. June 2026); Instructions for Form 7208 (Rev. December 2025); Publication 510 (Rev. December 2025); IRS remittance transfer penalty relief announcement (IR-2025-102). General information, not tax advice. Confirm how the rules apply to you with a qualified advisor or the IRS.
