In a significant move, the IRS declared on Tuesday that it will be forgiving penalty fees for individuals with outstanding taxes totaling less than $100,000 for the tax years 2020 and 2021. This announcement comes as part of a relief initiative aimed at aiding nearly 5 million people, businesses, and tax-exempt organizations, with the majority having an income below $400,000 per year. The relief, totaling around $1 billion, will start to roll out this week.
The backstory to this decision lies in the temporary suspension of automated reminders to pay overdue tax bills during the pandemic, which began in February 2022. The IRS leadership cites this pause in automated reminders as a key factor in the decision to waive the failure-to-pay penalties.
"Due to the unprecedented effects of the COVID-19 pandemic, these reminders would have normally been issued as a follow-up after the initial notice," explained the IRS in a statement. "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."
While the IRS plans to resume sending out regular collection notices, this Tuesday's announcement serves as a one-time relief measure, acknowledging the extraordinary circumstances created by the pandemic.
"It was an extraordinary time, and the IRS had to take extraordinary steps," remarked IRS Commissioner Daniel Werfel during a press briefing. He clarified that the relief would be automatic for many taxpayers, requiring no additional action.
Taxpayers will automatically qualify for relief if they filed a Form 1040, 1041, 1120 series, or Form 990-T tax return for the years 2020 or 2021, owe less than $100,000 per year in back taxes, and received an initial balance-due notice between Feb. 5, 2022, and Dec. 7, 2023.
Commissioner Werfel assured that those who had already paid the failure-to-pay penalty would receive a refund. "People need to know the IRS is on their side," he emphasized during the call with reporters.
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