PayoutTaxCan't pay the tax on your prop firm payouts?
Updated November 1, 2026 · For the 2026 tax year
File your return on time, even if you can't pay. The late-filing penalty is 10 times the late-payment penalty, and the IRS has payment plans for what you can't cover now.
Why filing matters most
| Penalty | Per month or part of a month | Maximum |
|---|---|---|
| Failure to file | 5% of tax due | 25% |
| Failure to pay | 0.5% of unpaid tax | 25% |
When both apply in the same month, the combined charge is 5%. Say you owe $5,000 and are three months late:
- Filed on time, paid late: 0.5% × 3 months = 1.5%, or $75.
- Filed late and paid late: 5% × 3 months = 15%, or $750.
Interest is added on top in both cases. A return more than 60 days late also has a minimum penalty: for a return due after 2025, $525 or 100% of the tax owed, whichever is less.
An extension doesn't buy time to pay
An extension moves your filing date to October 15, but the tax is still due in April. If the return isn't ready, extend and pay what you can by the April date. Paying online and marking the payment as an extension request means you don't need a separate form.
IRS payment plans
| Short-term | Long-term (monthly) | |
|---|---|---|
| Time to pay | Up to 180 days | Monthly installments |
| Apply online if you owe | Under $100,000 | $50,000 or less, with all required returns filed |
| Setup fee, online | $0 | $29 with direct debit, $69 otherwise |
| Setup fee, phone, mail or in person | $0 | $107 with direct debit, $178 otherwise |
The amounts include tax, penalties and interest. Low-income taxpayers can get reduced or waived fees. You can apply through your IRS online account, or by phone or mail with Form 9465.
Interest and some penalties keep running until the balance is paid, so pay it off sooner if you can. If you filed on time, the failure-to-pay penalty drops to 0.25% a month during an approved plan.
Which to choose
- You can clear it within about six months: the short-term plan has no setup fee.
- You need longer: a long-term plan with direct debit, set up online, has the lowest fee.
- You can't afford either: talk to a CPA or enrolled agent before you agree to anything.
Keep next year's bill from stacking up
A payment plan covers last year, but tax on this year's payouts keeps building. Set aside a percentage of each payout, and keep up with the estimated tax dates.
Your state runs its own penalties and payment plans, so check its revenue department as well. These are general information and planning estimates, not tax advice: confirm with a CPA.
Sources
- IRS, Failure to file penalty: the 5% rate, 25% maximum and minimum penalty
- IRS, Failure to pay penalty: the 0.5% rate, 25% maximum, 0.25% during a plan, and how the two penalties combine
- IRS, Payment plans; installment agreements: limits, fees and how to apply
- IRS, Get an extension: the October 15 date and paying online
General information, not tax advice. This guide explains common rules for US funded traders; your situation may differ. It isn't a substitute for a licensed CPA or IRS enrolled agent, so review your own numbers with one before you file or pay.