The IRS recently announced a relief measure allowing about 6.8 million Americans to skip penalties when filing their tax returns for the past two years. This move is seen as a way to support people and businesses financially impacted by the pandemic.
Significant Penalty Relief
The IRS has decided to waive failure-to-pay penalties on assessed taxes of less than $100,000 for the tax years 2020 and 2021. This affects nearly 5 million taxpayers and offers approximately $1 billion in penalty relief. This decision was prompted by COVID-19 disruptions, which prevented many taxpayers from receiving reminder notices about their balance due.
Automatic Relief
To benefit from this automatic penalty relief, taxpayers must meet specific criteria. Eligible taxpayers include those who filed Form 1040, 1041, 1120 series, or Form 990-T tax returns for 2020 and 2021, received a balance due notice between February 5, 2022, and December 7, 2023, and have unpaid taxes of less than $100,000. This relief covers individuals, businesses, estates, trusts, and tax-exempt entities.
Importantly, eligible taxpayers will automatically receive this relief without any further action. Even those who have already made payments or have a paid-in-full balance will still be granted the penalty relief. The IRS will offset any amount due for other tax years or issue a refund where no amount is due.
Eligibility Criteria
| Criteria | Details |
|---|---|
| Filing Requirements | Filed Form 1040, 1041, 1120 series, or Form 990-T |
| Notice Received Dates | Between February 5, 2022, and December 7, 2023 |
| Unpaid Tax Limit | Less than $100,000 |
| Covered Taxpayers | Individuals, businesses, estates, trusts, tax-exempt |
Steps for Non-Qualifiers
While this relief is comprehensive, it does have its limitations. Taxpayers with assessed taxes of $100,000 or more do not qualify for automatic relief. However, these individuals and businesses can still request penalty abatement based on reasonable cause or apply for the First-Time Abate program.
It’s important to note that while the failure-to-pay penalty is being waived, interest on the remaining balance continues to accrue. Taxpayers who do not qualify for automatic relief or have unique situations should contact the IRS after March 31, 2024, for further assistance.
Payment Plans and Penalties
For those unable to pay their taxes in full, the IRS offers several payment options. Taxpayers can use the Online Payment Agreement tool to set up a payment plan, consider an Offer in Compromise to pay less than the owed amount, or opt for an installment agreement. A temporary suspension of the collection process is also available.
The IRS advises against delaying responses to notices, as tax bills can worsen over time due to accrued fees, penalties, and interest. Ignoring tax debts can lead to severe consequences, such as federal tax liens, levies on property or bank accounts, and restrictions on international travel for those with debts over $59,000.
Payment Options
| Payment Method | Description |
|---|---|
| Online Payment Agreement | Set up a payment plan for tax debt |
| Offer in Compromise | Pay less than the owed amount |
| Installment Agreement | Pay off the amount in installments |
| Temporary Suspension | Temporary halt in collection process |
Taking Advantage of the Relief
The IRS penalty relief measure is designed to help taxpayers who faced financial difficulties during the pandemic. The IRS has already waived millions of dollars in failure-to-pay penalties for tax debts from 2020 and 2021. However, it’s important to remember that this relief does not eliminate the obligation to pay taxes.
Interest will continue to accumulate on unpaid balances, and those with significant tax bills should seek other forms of relief. As the IRS resumes normal collection activities, taxpayers need to evaluate their tax situations, utilize available payment methods, and address unsettled tax matters to avoid severe penalties in the future.
FAQs
Who qualifies for IRS penalty relief?
Taxpayers with unpaid taxes of less than $100,000 for 2020 and 2021.
What forms need to be filed to qualify?
Forms 1040, 1041, 1120 series, or 990-T.
Will interest still accrue on unpaid balances?
Yes, interest will continue to accumulate until the balance is paid.
What if my assessed tax is $100,000 or more?
Request penalty abatement based on reasonable cause or apply for First-Time Abate.
What happens if I ignore IRS notices?
Ignoring notices can lead to accrued fees, penalties, and severe consequences like tax liens.