The Internal Revenue Service on Tuesday announced it will waive penalty fees for people and businesses that failed to pay back taxes totaling less than $100,000 in 2020 and 2021 and did not receive automated notices due to COVID-19 disruptions.
The move provides some $1 billion in relief for approximately 4.7 million individuals, businesses and tax-exempt organizations, the IRS said.
The IRS temporarily suspended the mailing of automated reminders to pay overdue tax bills starting in February 2022, but the failure-to-pay penalties continued to accrue. The agency said it will waive the penalties for eligible taxpayers affected by this “unusual situation.”
“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 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 Forms 1040, 1120, 1041 and 990-T income tax returns for tax years 2020 or 2021, with an assessed tax of less than $100,000, and that were in the collection process or were issued an initial balance due notice between Feb. 5, 2022, and Dec. 7, 2023.
The penalty relief is automatic, the agency said. Eligible taxpayer do not have to take any action to receive the relief, and taxpayers who already paid their balance in full will also benefit. Taxpayers who already paid penalties for their 2020 and 2021 tax years will receive a refund or a credit toward other outstanding tax liabilities.
The IRS is set to resume sending automatic collection notices in January.
“The IRS wants to help taxpayers and provide them easy options to deal with unpaid tax bills and avoid additional interest and penalties,” said Werfel. “People receiving these notices should remember that there are frequently overlooked options that can help them set up an automatic payment plan or catch up with their tax filings. Making additional improvements in the collection area will be an important focus for the IRS going forward as we continue and accelerate our transformation work.”
During the COVID-19 pandemic, the Internal Revenue Service (IRS) implemented several tax relief measures to alleviate the financial burden on individuals and businesses. One significant action was the extension of the federal income tax filing deadline, giving taxpayers additional time to file their returns without incurring penalties. The IRS also introduced the Employee Retention Credit to encourage businesses to keep employees on their payroll. Furthermore, the agency adjusted its policies to allow for deferred tax payments, enabling taxpayers to manage cash flow challenges during the economic downturn. These measures, among others, were part of the broader federal response aimed at providing economic support and stability in the face of the unprecedented public health crisis.