Is the IRS Waiving Your Back Tax Penalties?

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.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

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.

Sign up

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