What is the penalty for failing to file a tax return on time?

The penalty for failing to file a tax return on time is indeed a percentage of the taxes owed, specifically 5% for each month or part of a month the return is late. This penalty begins to accrue the day after the due date and continues until the tax return is filed or the penalty reaches a maximum of 25% of the unpaid taxes.

It's essential to understand that this penalty structure is intended to encourage timely filing, as the longer a taxpayer waits to file, the higher the penalty accumulates, creating a financial incentive to file promptly. The maximum penalty ensures that taxpayers are not excessively penalized beyond a certain point, providing some relief if they experience prolonged issues in filing.

Other penalties like a flat amount or lesser percentages do not accurately reflect the IRS's structure for the late-filing penalty, making it important for taxpayers to be aware of the consequences associated with failing to file their taxes on time.