The IRS is providing relief to taxpayers by waiving around $1 billion in late-payment penalties for those with balances under $100,000 from returns filed in 2020 and 2021. Approximately 4.7 million individual taxpayers, businesses, trusts, estates, and nonprofit organizations are eligible for this penalty removal, which amounts to about $206 per return. The relief is automatic, and filers who have already paid late-payment penalties for the specified tax years will receive a refund or credit. However, it’s essential to note that late-payment penalties for unpaid balances from 2020 and 2021 will resume on April 1, 2024.
The waiver specifically applies to the failure-to-pay penalty, which is 0.5% of unpaid taxes per month or partial month, capped at 25%. Eligible taxpayers may still be subject to the failure-to-file penalty and interest. The late filing penalty is 5% of unpaid taxes per month or partial month, with a maximum fee of 25%. The current interest rates are 8% per year, compounded daily.
This relief comes as the IRS is preparing to resume collection notices that were temporarily paused in February 2022 due to the “high inventories” created by the Covid-19 pandemic. The penalty relief aims to support taxpayers who may not have received notices for a while, providing a common-sense approach to address their situation.
Starting next month, the IRS will send a “special reminder letter” to inform taxpayers about their liability, payment options, and details about the penalty relief. It emphasizes the importance of taking action after receiving an IRS notice and offers flexible payment options for unpaid balances. Taxpayers can set up payment plans using the QR code from their IRS notice.
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