The IRS is waiving $1 billion in penalty fees for taxpayers: Who is eligible?

The covid-19 pandemic caused major disruptions across all aspects of life and threw a wrench into the operations of countless businesses and services. So was the case for the Internal Revenue Service which was in the middle of the 2020 tax filing season at the time.

While the US tax agency quickly ramped up capabilities for the majority of its employees to work from home, the unprecedented situation forced the IRS to temporarily suspend the mailing of automated reminders to pay overdue tax bills. As the agency prepares to resume sending normal collection notices for the tax years 2020 and 2021 it is taking steps to help taxpayers.

Starting next month, the IRS announced that it will send a special reminder letter as well as taking steps to waive failure-to-pay penalties to the tune of $1 billion for eligible taxpayers that were affected. The US tax agency estimates that around 4.7 million filers including individuals, businesses, trusts, estates and tax-exempt organizations will be eligible for the penalty relief, roughly $206 per return.

“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,” IRS Commissioner Danny Werfel said. “The IRS should be looking out for taxpayers, and this penalty relief is a common-sense approach to help people in this situation.”

The IRS is waiving $1 billion in penalty fees for taxpayers: Who is eligible?

The IRS says that only “taxpayers with assessed tax under $100,000″ per year and per entity will be eligible. They must also have filed a Form 1040, 1041, 1120 series or Form 990-T income tax return for years 2020 or 2021. Furthermore, they must have been “in the IRS collection notice process -- or were issued an initial balance due notice between Feb. 5, 2022, and Dec. 7, 2023.”

Taxpayers that are eligible for relief are advised any failure-to-pay penalties that they are subject to will resume on 1 April 2024.

Those taxpayers who are not eligible for this automatic relief have options for penaly relief as well and are advised to visit the IRS penalty relief web page.

When will the IRS inform eligible taxpayers of the penalty relief?

The IRS informs that the tax penalty relief for tax years 2020 and 2021 is automatic and that taxpayers do not have to do anything. Those who are eligible will receive a refund or if they have any outstanding tax liability, they will get a credit toward it. This applies to those who already paid in full their failure-to-pay penalties related to their 2020 and 2021 tax years.

The US tax agency has already made adjustments to eligible individual accounts. Seventy percent of those eligible were taxpayers with earnings of less than $100,000 per year.

Business accounts will be adjusted in late December and early January followed by trusts, estates and tax-exempt organizations in late February to early March 2024.

The first round of refunds has already begun and will continue through January next year. Those taxpayers who don’t receive a refund may be issued a special reminder notice with their updated balance beginning in early 2024.

The agency askes taxpayers who have questions on penalty relief to wait until after 31 March 2024 to contact the IRS.