The IRS is waiving about $1 billion in penalties owed on overdue taxes for the 2020 and 2021 tax years.
The move will benefit about 4.7 million taxpayers, including individuals, businesses, trusts, estates and others. The average savings per return is $206, according to the agency.
The penalty waiver stems from actions the IRS took during the Covid-19 pandemic. Due to the effects of the pandemic, the agency temporarily stopped sending routine, automated notices to taxpayers reminding them to pay overdue tax bills.
Although the reminders were suspended, penalties continued to accrue, the IRS said.
The IRS is preparing to resume its normal collection processes, including the automated notices, and the penalty waiver is part of its plans to restart.
Since the reminder notices stopped going out, taxpayers may have been unaware they still owed money, according to Politico. So the agency is giving those taxpayers a break.
You qualify for the relief if you had penalties associated with overdue taxes from the 2020 and 2021 tax years.
The relief is automatic. Eligible taxpayers don’t need to take any action.
If you had penalties and already paid them, you’ll also benefit. The IRS plans to issue refunds or credit those payments toward other tax liabilities.
The penalty waiver only applies to taxpayers with assessed taxes under $100,000 and filed certain Forms 1040, 1120, 1041 and 990-T income tax returns for tax years 2020 or 2021. Eligible taxpayers were also already in the IRS collection notice process or were issued an initial balance due notice between Feb. 5, 2022, and Dec. 7, 2023.
Penalties will begin to accrue again on April 1, 2024 for taxpayers covered by the relief if they don’t pay off their balances before then.
The IRS plans to issue special reminder letters on penalties and the relief starting next month. It will alert taxpayers to their liabilities and outline any penalty relief.
Taxpayers with balances due can make payments at irs.gov/payments, the agency said.
The IRS plans to begin sending its automated collection notices once again in January.
Most of those receiving the penalty relief make under $400,000 a year, according to the IRS. Nearly 70 percent of the individuals eligible for the relief have incomes under $100,000 a year.
More information is available on the IRS website.