The Internal Revenue Service announced that it will waive about $1 billion in tax penalties for millions of taxpayers who failed to pay their taxes during the height of the Covid pandemic.
The agency said it will provide the penalty relief to 4.7 million individuals, businesses and tax-exempt organizations that were not sent automated collection reminder notices about tax payments for the 2020 and 2021 tax years.
Nearly 70% of the individual taxpayers receiving penalty relief have income under $100,000 per year, the agency said. The penalty relief applies only to eligible taxpayers with assessed taxes under $100,000.
“Due to the unprecedented effects of the Covid-19 pandemic, the IRS temporarily suspended the mailing of automated reminders to pay overdue tax bills starting in February 2022,” the agency said in a press release yesterday. “These reminders would have normally been issued as a follow-up after the initial notice. Although these reminder notices were suspended, the failure-to-pay penalty continues to accrue for taxpayers who did not fully pay their bills in response to the initial balance due notice.”
The IRS said it plans to issue reminder letters to taxpayers starting next month, alerting them of their liability, as well as how they can pay the debts and whether they are eligible for penalty relief.
But the agency added that the penalty relief will be given automatically, and that eligible taxpayers don’t need to take any action to receive it.
“As a first step, the IRS has adjusted eligible individual accounts and will follow with adjustments to business accounts in late December to early January, and then trusts, estates and tax-exempt organizations in late February to early March 2024,” the agency said. “Nearly 70% of the individual taxpayers receiving penalty relief have income under $100,000 per year.”
Taxpayers who have already paid failure-to-pay penalties related to their 2020 and 2021 tax years will get a refund or credit for the payment toward another outstanding tax liability, the IRS said.
“As the IRS has been preparing to return to normal collection mailings, we have been concerned about taxpayers who haven’t heard from us in a while suddenly getting a larger tax bill. The IRS should be looking out for taxpayers, and this penalty relief is a common-sense approach to help people in this situation,” IRS Commissioner Danny Werfel said in a prepared statement. “We are taking other steps to help taxpayers with past-due bills, and we have options to help people struggling to pay.”
Eligible taxpayers include individuals, businesses, trusts, estates and tax-exempt organizations that filed certain Forms 1040, 1120, 1041 and 990-T income tax returns for tax years 2020 or 2021, that had an assessed tax of less than $100,000, and that were in the IRS collection notice process—or were issued an initial balance due notice between Feb. 5, 2022, and Dec. 7, 2023.
The IRS added that the $100,000 limit applies separately to each return and each entity. The failure-to-pay penalty will resume on April 1, 2024, for taxpayers eligible for relief.
The agency also noted that taxpayers not eligible for the tax penalty relief may use existing penalty relief procedures, such as applying for relief under the reasonable cause criteria or the First-Time Abate program. Visit IRS.gov/penaltyrelief for details.