Just in time for the holiday season, the IRS announced a move to help individuals, businesses, and tax-exempt organizations that owe back taxes. The agency says it will waive nearly $1 billion in penalties for taxes owed by more than 4.7 million people and entities that didn’t receive automated collection reminders during the COVID-19 pandemic. The penalty relief mainly targets those earning under $400,000 a year.
IRS Commissioner Danny Werfel said the agency wants to help taxpayers with past-due bills.
“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,” Werfel explained in a statement.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Here’s what else you should know.
IRS waiving $1 billion in tax penalties
During the pandemic, the IRS temporarily paused mailing its usual automated reminder to taxpayers who owed back taxes. Even though taxpayers didn’t receive reminder notices, failure to pay penalties continued to add up for those who didn’t pay their taxes in full after receiving an initial balance-due notice.
As a result, many taxpayers didn’t hear from the agency for more than a year after the initial notice was sent. So, the IRS is waiving failure-to-pay penalties for eligible taxpayers affected by the collection notice pause during 2020 and 2021. This penalty relief will potentially benefit nearly 5 million taxpayers and provide an estimated $1 billion in tax relief. (According to the IRS, that comes to about $206 per return.)
The agency says adjustments will be made progressively to individual, business, trust, estate, and tax-exempt organization accounts, with nearly 70 percent of eligible individual taxpayers earning under $100,000 a year.
- For eligible taxpayers, the relief is automatic, so no action is required.
- If you’re eligible and already settled your full balance; the IRS says it will issue refunds or credit payments toward outstanding tax liabilities.
- The failure-to-pay penalty will resume on April 1, 2024, for eligible taxpayers.
Note: The penalty relief applies to eligible taxpayers with assessed tax under $100,000, specifically for certain Forms 1040, 1120, 1041, and 990-T filed during 2020 or 2021, and those engaged in the IRS collection process or issued an initial balance due notice between Feb. 5, 2022, and Dec. 7, 2023. The IRS stresses that the $100,000 limit applies separately to each tax return and entity.
Penalties waived but IRS collection notices coming
The IRS is gradually sending automated collection notices and letters to taxpayers with outstanding tax debts before the 2022 tax year for individuals and before the 2023 tax year for businesses, tax-exempt organizations, trusts, and estates. The agency says it will issue special reminder letters starting in Jan. 2024.
- The letters will alert taxpayers of their liability, easy ways to pay, and the amount of penalty relief, if applied.
- If you receive a reminder letter from the IRS, you should review it carefully and respond. Consult a qualified tax professional for assistance.
- For those unable to clear their entire balance, the IRS recommends visiting IRS.gov/payments to arrange payment plans.
How to pay taxes to the IRS
If you need more information about paying taxes to the IRS, see Kiplinger’s report, How to Pay the IRS if You Owe Taxes.
The IRS encourages taxpayers ineligible for automatic relief to explore existing penalty relief procedures including the agency's First-Time Abate program,
Related
- Can you Withdraw Your ERC Claim?
- States Issuing Tax Rebates and 'Stimulus Checks'
- Ways to Pay the IRS if You Owe Taxes
-
Aging: The Overlooked Risk FactorSponsored Elder care is a personal and financial vulnerability many people fail to plan for.
-
AI vs the Stock Market: How Did Alphabet, Nike and Industrial Stocks Perform in June?AI is a new tool to help investors analyze data, but can it beat the stock market? Here's how a chatbot's stock picks fared in June.
-
Ask the Editor, June 27: Tax Questions on Disaster Losses, IRAsAsk the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on paper checks, hurricane losses, IRAs and timeshares.
-
Ask the Editor, June 20: Questions on Tax Deductions and IRAsAsk the Editor In our latest Ask the Editor round-up, Joy Taylor, The Kiplinger Tax Letter Editor, answers four questions on deductions, tax proposals and IRAs.
-
Don't Miss These Four Tax Breaks for Americans Living Abroad in 2025International Tax U.S. expats can reduce their tax burden by taking advantage of a handful of tax credits and deductions.
-
Ask the Editor, June 13: Questions on Home Sales and TaxesIn our latest Ask the Editor round-up, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on home sales and calculating tax basis in a home.
-
Ask the Editor, June 6: Questions on Hobby Losses, Medicare
In our latest Ask the Editor round-up, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on hobby losses, I bonds and Medicare premiums.
-
Ask the Editor, May 30: Questions on the One Big Beautiful BillAsk the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on the House-passed “One Big Beautiful Bill.”
-
Ask the Editor, May 23: Reader Questions on Gifts, Estate TaxIn this week's Ask the Editor Q&A, we answer tax questions from readers on gifts, the estate tax and stepped-up basis upon death.
-
Ask the Editor, May 16 — Reader Questions on Capital GainsIn our latest Ask the Editor round-up, Joy Taylor, The Kiplinger Tax Letter Editor, answers three questions from readers on capital gains.
