New York State Tax Penalties for Individuals and Businesses

Late Payment Penalties & Interest in NYS

Many penalties arise from payment problems, including payments that are late, insufficient, or otherwise outside the Department’s requirements.

Interest

NYS DTF charges interest on tax—including sales and use tax—that is not paid on or before the return’s due date, even when the taxpayer receives an extension of time to file. Interest compounds daily and generally cannot be waived.

NYS DTF adjusts interest rates quarterly, and the rates vary by tax type. For Q4 2026, the Department lists a 9.5% underpayment rate for personal income tax, a 14.5% rate for sales and use tax, and an 11% rate for withholding tax and corporation tax.

NYS DTF publishes current and historical interest rates and provides its own tools for estimating interest.

Late payment penalty

If you pay late, NYS DTF may add interest and a late-payment penalty to your account. For personal income tax, the penalty is generally 0.5% of the unpaid amount for each month or part of a month that the balance remains unpaid, up to 25% of the unpaid tax.

Penalty for underpayment of estimated tax

You may owe an underpayment penalty when your estimated-tax payments were too low or were paid late. For many individual taxpayers, a safe harbor is based on paying at least 90% of the current-year tax or 100% of the prior-year tax, whichever is lower. Certain higher-income taxpayers must use a higher prior-year percentage, and special rules and exceptions may apply.

The rate is generally the federal short-term rate plus 5.5 percentage points, with a statutory minimum. This penalty may apply to taxpayers with freelance or gig income, self-employment income, rental income, business income, or insufficient employer withholding.

Accuracy and Compliance Penalties

New York State may impose penalties for noncompliance and inaccuracies in tax records or returns. Common examples include the following.

Late filing penalty

For personal income tax, the late-filing penalty is generally 5% of the unpaid tax for each month or part of a month that the return is late, up to 25%. When a return is more than 60 days late, a minimum penalty may apply based on the lesser of $100 or the tax required to be shown on the return.

Incorrect tax calculation penalty

New York State may impose a penalty when the tax reported on a return is substantially less than the amount actually due. The penalty described in the source material is 10% of the difference between the reported tax and the correct tax when the understatement exceeds the applicable threshold.

For example, if you report $2,000 due but the correct liability is $4,000, a 10% penalty on the $2,000 difference would be $200, in addition to the unpaid tax and interest. Actual treatment depends on the governing provision and the facts of the return.

Negligence, fraudulent returns, and frivolous returns

These are separate penalties that apply in different circumstances.

When errors or underpayments result from intentional criminal acts rather than mistakes or negligence, criminal penalties may apply in addition to civil consequences.

Withholding tax noncompliance

Employers in New York generally must withhold state income tax from employees’ pay and remit it to NYS DTF. Failures involving Form NYS-45 or employee withholding information can lead to penalties.

Sales and Use Tax Penalties

Businesses that sell taxable items or services—for example, restaurants and retailers—generally must collect sales tax on taxable transactions and remit it to the state. Businesses may incur penalties for several reasons.

Failure to register

Selling taxable items or services without a required Certificate of Authority can trigger daily penalties, subject to a statutory maximum.

Failure to collect sales and use tax

Failing to collect state and local sales tax can lead to monetary and criminal penalties. A business that has not collected or remitted required tax may qualify for New York’s Voluntary Disclosure and Compliance Program.

Inadequate recordkeeping

A sales tax audit may result in penalties when records are not maintained or produced in an auditable form, including when required electronic records are not made available electronically.

Failure to pay or pass through tax

Sales tax penalties can add up quickly:

How to Calculate New York Penalties and Interest

Use the calculator above for an estimate, or review these simplified examples. NYS DTF’s assessment and account history control the actual amount due.

NYS late-filing penalty (failure to file)

The personal income tax rate is generally 5% of unpaid tax per month or part of a month, up to 25%. If you owe $8,000, one full month of late-filing penalty would be:

$8,000 × 5% = $400

NYS DTF late-payment penalty (failure to pay)

The personal income tax rate is generally 0.5% of unpaid tax per month or part of a month, up to 25%. If you owe $8,000, one month of late-payment penalty would be:

$8,000 × 0.5% = $40

NYS sales tax penalty

The general late-filing and late-payment rate is 10% for the first month plus 1% for each additional month or part, up to 30% of the unpaid tax. Late-return minimums may also apply.

On a $30,000 sales tax liability resolved six months late:

Underpayment of estimated tax

The penalty varies based on the amount and timing of each underpayment. NYS DTF generally applies the annual penalty rate separately to each installment:

Underpayment × (number of days ÷ 365) × applicable annual penalty rate = estimated penalty

Suppose Maria owes $10,000 of New York personal income tax for 2025. Her 2024 tax was $8,000, her 2024 New York adjusted gross income was below the applicable higher-income threshold, and she paid $1,500 on each of the four 2025 estimated-tax due dates.

Ninety percent of her 2025 tax is $9,000. Her prior-year tax was $8,000, so in this simplified example the lower safe-harbor amount is $8,000, or $2,000 per installment. Because she paid $1,500 per installment, each installment is $500 short. The penalty is calculated separately for each underpayment based on the number of days it remained unpaid.

Use Form IT-2105.9, Underpayment of Estimated Income Tax by Individuals and Fiduciaries, to calculate the penalty when required and attach it to the New York return.

Penalty Abatement and Waivers

NYS DTF grants penalty relief in qualifying situations. Some provisions allow relief when a filing or payment problem is corrected promptly, while reasonable-cause relief depends on the taxpayer’s facts and supporting documentation.

A tax attorney may request relief through a Tax Professional Online Services account when authorized to represent the taxpayer. You can also learn more about penalty abatement and the evidence commonly needed to support a request.

Contact Timothy S. Hart Law Group to discuss tax penalty services, or schedule a consultation.