IRS to waive $1 billion in late-payment penalties

IRS waive penalties overview: 

• Who: The IRS will be waiving late penalties for nearly 4.7 million individuals, businesses and tax-exempt organizations in an action that could provide around $1 billion in penalty relief. 
• Why: The penalties accrued from late tax bills for 2021 and 2022 as regular automated collection reminders were discontinued during the COVID-19 pandemic.
• Where: The IRS penalties waiver is valid across the United States.

The IRS will waive late penalties for nearly 4.7 million individuals, businesses and tax-exempt organizations that were not provided with regular automated collection reminders.

The IRS penalty waiver is estimated to be worth $1 billion in relief for penalties accrued from late tax bills for 2021 and 2022 as regular automated collection reminders were discontinued during the COVID-19 pandemic. The automated reminders were stopped in February 2022.

“These reminders would have normally been issued as a follow up after the initial notice,” the IRS said in its penalty-waiver announcement. “Although these reminder notices were suspended, the failure-to-pay penalty continues to accrue for taxpayers who did not fully pay their bills in response to the initial balance due notice.”

Most who are receiving the penalty relief make less than $400,000 per year, the IRS says. 

Penalty waiver will be average $206 benefit per taxpayer

The IRS will be sending reminder letters next month for past-due taxes that will include the amount owed, ways to pay and the amount of penalty relief, the IRS says.

The IRS estimated that the relief will affect 5 million tax filings from 4.7 million individuals, businesses or tax-exempt organizations that will amount to an estimated $206 in relief per individual.

“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,” IRS Commissioner Danny Werfel said. “We are taking other steps to help taxpayers with past-due bills, and we have options to help people struggling to pay.”

The penalty waiver only applies to eligible taxpayers with past-due tax bills of less than $100,000.

The eligible taxpayers must have received an initial balance due notice between Feb. 5, 2022, and Dec. 7, 2023. The failure-to-pay penalties will start again April 1, 2024, the IRS said.

The IRS plans to launch a free tax filing pilot program that will be available for eligible taxpayers in 13 states during the 2024 tax season.

Will you or your business or organization be eligible for IRS penalties relief? Let us know in the comments.

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