Late 1120-S Penalty by Year, and How to Catch Up

The short answer: The IRS charges the S corporation a flat penalty for each shareholder, for each month or part of a month the return is late, for up to 12 months. For a return due in 2026 it’s $255 per shareholder per month, so a year late with two shareholders costs $6,120. It applies even when the company owes no tax, every late year carries its own penalty, and relief exists, but it depends on the company’s filing history or on a reason the IRS accepts.

How is the late 1120-S penalty worked out?

Multiply three things: the monthly amount for the year the return was due, the number of shareholders, and the number of months late, up to 12. It’s a headcount charge, not a percentage of tax.

Months late count from the due date, or from the extended due date if a valid extension was filed. A calendar-year S corporation’s return is due on the 15th day of the third month after year-end; the 2025 return was due March 16, 2026, because March 15 fell on a Sunday. A Form 7004 extension, filed by that date, moves the deadline.
Part of a month counts as a month. A return filed one day late is one month late.
Every shareholder counts, including anyone who owned shares for only part of the year, such as a co-owner who sold their shares in February.
An incomplete return counts too. A return that doesn’t show all the required information can draw the same penalty as a late one, so a bare-bones filing isn’t a shortcut.
The corporation owes it, not the shareholders personally.

What is the penalty for each year?

The monthly amount is adjusted for inflation, and the one that applies is set by the year the return was originally due (extensions don’t change it), not the year you finally file it. A calendar-year return is due the year after the year it covers: the 2023 return was due in 2024, and the 2024 return in 2025.

Return due in	Per shareholder, per month
2021 or 2022	$210
2023	$220
2024	$235
2025	$245
2026	$255
2027	$260

Once a return is 12 months late, that year’s penalty stops growing. Interest on this penalty doesn’t build up while the return is late: it’s charged only if the IRS’s bill for the penalty isn’t paid within 21 calendar days, and then from the date of the bill until it’s paid. If the corporation also owed tax, interest on that tax, and on the percentage part of the penalty described below, runs from the due date. Three open years with the same two shareholders means three separate penalties, each capped at 12 months of its own year’s amount.

Does the penalty apply if the company owed no tax?

Yes, and it’s easy to miss. An S corporation usually pays no federal income tax itself: its profit or loss passes to the shareholders on Schedule K-1, and they report it on their own returns. Because the penalty counts people and months, a loss year or a quiet year costs the same as a profitable one.

In the less common year when the corporation does owe tax itself, such as tax on built-in gains or on excess net passive income, the instructions add 5% of the unpaid tax for each month or part of a month late, up to 25%, on top of the per-shareholder amount. For a return due in 2026 that’s more than 60 days late, that percentage part is at least the smaller of the tax due or $525.

What about the shareholders’ K-1s?

A separate penalty can apply to each Schedule K-1 that isn’t given to a shareholder when due, or that leaves out or misstates information. For K-1s due in 2026 the instructions set it at $340 per K-1, with more if the rules are intentionally disregarded; the amount for statements due in 2027 is also $340. It was $310 for K-1s due in 2024 and $330 for K-1s due in 2025. It can be waived for reasonable cause.

The law requires each shareholder’s copy no later than the day the return is filed, and the 1120-S instructions tie it to the return’s due date, so a late return usually means late K-1s too. The shareholders need it: they can owe tax on their share of the company’s income whether or not it was paid out to them. If a shareholder’s personal return went in without the K-1 figures, whoever prepares that return should check whether it needs amending.

Can the penalty be removed?

Sometimes. There are three routes, and which one fits depends on the company’s record. Penalty relief can be requested by you or an authorized representative; the IRS decides, and no one can promise the result.

First-time abatement. For a company that filed the same return on time for the three years before the penalized year (or had no return to file), with no penalties. It usually covers one year and needs a clean prior three years, so in a run of late years it can reach the first one at most. It’s available for 2024 and earlier returns, and for a 2025 return that didn’t get the automatic exemption; for returns due from 2027 on, the automatic exemption replaces it.
Automatic Exemption from Penalty. For 2025 and later tax years, the IRS applies this when the return is processed, with no request needed, if the same return was filed on time for the prior three years with no penalties. The return itself must be filed within three years of its original due date, so a calendar-year 2025 return filed more than three years after its March 16, 2026 due date won’t get it. IRS procedures issued in June 2026 name Form 1120-S, and the S corporation late-filing penalty, as covered.
Reasonable cause. For any year the first two don’t reach, relief needs a reason the IRS accepts, such as a fire or natural disaster, serious illness or a death, or being unable to get the records, and proof you took ordinary care. The IRS says relying on a preparer, not knowing the rules, or a simple mistake generally isn’t enough by itself.

If any of the 2022, 2023 or 2024 returns is missing, or drew a penalty that wasn’t later removed for reasonable cause or IRS error, the 2025 return won’t qualify; a penalty removed by first-time abatement still counts against it.

Timing matters. The 1120-S instructions say not to attach an explanation to the return: wait for the penalty notice, then call the number on it or write, for example on Form 843. If a penalty is removed, the interest charged on it comes off as well. If your company needs a professional to represent it before the IRS, that’s the job of an attorney, a CPA or an enrolled agent. We’ll tell you on the call if your situation needs one and arrange it; it may be a separate engagement.

How do you catch up several late years, in order?

Oldest first, because each year’s closing balances are the next year’s opening balances. A workable order:

Confirm the company is an S corporation. If the IRS never accepted its Form 2553 election, the right return may be Form 1120, not 1120-S. Our guide to late S corporation elections explains the fix.
List every open year, along with any payroll forms and Florida filings missed alongside it. Our guide to finding unfiled business returns covers checking what the IRS has on record.
Rebuild the books, oldest year first, from bank and card statements, so every year opens on the right balances.
File the returns oldest first, each with a K-1 for every shareholder. In 2026, IRS e-file accepts the latest tax year and the two before it (2023 to 2025); older years go on paper.
Send each shareholder their K-1s, so their personal returns can be filed or corrected.
Deal with the balance when the notices arrive. Filing stops the late-filing penalty from growing. The late-payment penalty and interest keep running on any unpaid balance until it’s paid in full, even under a payment plan, so paying sooner costs less; a payment plan spreads the balance out.
Request relief where it fits: first-time abatement for the earliest eligible year, and reasonable cause where the facts support it.
File the current year on time. Three years filed and paid on time is also what a future late return needs to qualify for the automatic exemption.

On the Florida side, an S corporation files Form F-1120 only in a year it pays federal income tax on line 23c of Form 1120-S, so most late 1120-S years don’t bring a Florida income tax return with them.

Cayde rebuilds the books and gets every late 1120-S filed, oldest year first, at a fixed price in writing first. See how an S corporation catch-up works and what a catch-up costs.

Quick answers

Do the shareholders pay the late 1120-S penalty personally?

No. The law assesses it against the S corporation. Shareholders still feel it: the company’s money pays it, and they can’t file accurate personal returns until they have their K-1s.

Does a shareholder who sold their shares during the year count?

Yes. Anyone who was a shareholder during any part of the tax year is counted, even for a few weeks, so a year with an ownership change can carry a larger penalty than today’s share register suggests.

Should a reasonable-cause letter go in with the late return?

No. The Form 1120-S instructions say not to attach an explanation when the return is filed. Once the IRS sends a notice about the penalty, send the explanation then, or call the number on the notice.

Is a return filed three years late penalized more than one filed a year late?

Not under the per-shareholder penalty. It stops at 12 months for each return, and interest on it starts only once the IRS bills it. Waiting still costs more in other ways: every further year left unfiled adds a penalty of its own, and if the company owed tax, interest on that tax keeps running from its due date.

Sources

General information, not advice for your situation. Updated October 31, 2026.

What happens if an S corporation files Form 1120-S late?