The IRS announced on Tuesday that it will be waiving penalty fees for individuals and organizations who failed to pay back taxes totaling less than $100,000 per year for tax years 2020 and 2021. This relief measure is expected to benefit nearly 5 million people, businesses, and tax-exempt organizations, most of whom earn less than $400,000 per year. The total amount of fees waived is estimated to be around $1 billion, according to the agency.
The decision to forgive the failure-to-pay penalties comes as a result of the temporary suspension of automated reminders to pay overdue tax bills during the COVID-19 pandemic. The IRS explained that these reminders would typically be issued as a follow-up after the initial notice, but due to the unprecedented effects of the pandemic, they were suspended. However, the failure-to-pay penalty continued to accrue for taxpayers who did not fully pay their bills in response to the initial balance due notice.
IRS Commissioner Daniel Werfel addressed the relief measure during a press conference, stating that it was a necessary step given the extraordinary circumstances brought about by the pandemic. He emphasized that the change would be automatic for many taxpayers and would not require any additional action on their part. Taxpayers who 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 February 5, 2022, and December 7, 2023, are eligible for automatic relief.
Werfel also mentioned that individuals who had already paid the failure-to-pay penalty would receive a refund. He reassured the public that the IRS is on their side and wants to provide support during these challenging times.
The relief measure aims to address the disruption caused by the pandemic, which resulted in operational turmoil for the IRS and a significant backlog of unprocessed tax returns. The decision to suspend notices to taxpayers who owed money created a dilemma as penalties continued to accumulate for those in arrears, despite the lack of reminders from the IRS.
The relief will particularly benefit those earning under $400,000 per year, as the majority of the approximately 5 million eligible individuals, businesses, and tax-exempt organizations fall into this income bracket, according to the IRS. The agency's decision to waive $1 billion in fees is a significant step towards providing financial relief to those impacted by the pandemic and the resulting economic challenges.
Overall, this relief measure is seen as a one-time solution based on the unprecedented interruption caused by the pandemic. The IRS plans to resume sending out normal collection notices in the future, but for now, this gesture aims to alleviate the burden on taxpayers who have faced difficulties during these extraordinary times.
