IRS Launches Initiative to Provide Pandemic-Related Penalty Relief for Nearly 5 Million Taxpayers
The Internal Revenue Service (IRS) has introduced a new initiative aimed at offering relief from certain penalties to approximately 4.7 million taxpayers who owe back taxes but have not received notices in over a year. This move is expected to provide around $1 billion in relief and applies to individuals, businesses, and tax-exempt organizations that were not sent automated collection reminder notices during the pandemic. The IRS has highlighted that a significant majority of those eligible for penalty relief earn less than $400,000 annually.
The relief initiative specifically targets taxpayers who owe less than $100,000 in back taxes for the tax years 2020 and 2021. Notably, the penalty relief is automatic, requiring no action on the part of eligible taxpayers.
The IRS emphasized that while the relief covers the failure-to-pay penalty, it does not extend to interest on unpaid taxes, and no relief is provided for the failure to file a return. The failure-to-pay penalty is a complex calculation amounting to 0.5% of the unpaid taxes for each month or partial month the tax remains outstanding, with a maximum penalty cap of 25% of the unpaid taxes.
Eligible taxpayers stand to save an average of slightly over $200 per return due to the waiver of this key penalty. The relief comes in the form of a refund for those who have already paid the penalty. The IRS will initiate the first round of refunds from now through January, with the funds being issued directly or credited toward other outstanding tax liabilities.
In cases where taxpayers do not receive a refund, the IRS has indicated that a special reminder notice may be sent, providing an updated balance starting in early 2024.
For individuals with questions regarding penalty relief, the IRS has set up a support system accessible after March 31, 2024. Additional information about potentially waiving such penalties, even for those who do not qualify for the new initiative, is available at IRS.gov/penaltyrelief.
Taxpayers ineligible for the automatic relief have alternative options, such as applying for relief under reasonable cause criteria or the First-Time Abate program.
It is worth noting that the IRS will resume sending automated collection notices and letters in 2024, marking the end of a pandemic-related pause. The mailings will be staggered and gradually resume over several months. For instance, starting in January, the IRS will send automated collection paperwork to individuals with tax debts predating tax year 2022. In the same month, automated notices will be sent to businesses, tax-exempt organizations, and estates with tax debts predating 2023, with exceptions for those with existing debt in multiple years.
Some automated notices had already been dispatched in the fall regarding individual returns for tax year 2022 and third quarter 2023 business returns.