How does the penalty for failure-to-pay accumulate each month?

The penalty for failure-to-pay is determined as a constant rate of 0.5% of the unpaid taxes each month. This means that the penalty accumulates at a set percentage of the total outstanding tax liability, which is fully consistent regardless of the amount owed. Because it is applied monthly, taxpayers should be mindful of the cumulative effect over time, especially if payments are delayed.

Understanding this specific rate is crucial for taxpayers as it helps them plan their finances more effectively and avoid excessive penalties. The other options suggest varying methods of accumulation that do not accurately reflect how the IRS calculates these penalties. For instance, a flat fee or a percentage that increases in a different manner would not align with the structured and systematic way the IRS implements penalties for unpaid taxes.