During the COVID-19 pandemic, the IRS temporarily halted sending tax due notices to millions of individuals, businesses and organizations. However, penalties for non-payment or late payment continued to accrue on many overdue tax balances. To address this issue, the IRS has announced automatic penalty relief for nearly 5 million taxpayers with overdue taxes from tax year 2020 and/or 2021.
Affected taxpayers do not need to take any action to qualify for this penalty relief, but they should watch their mail for an IRS notice detailing overdue taxes. The penalty waiver will remain in effect only through March 31, 2024, so taxpayers should pay the overdue amount by that date if at all possible. Those who cannot pay the full amount they owe can still reduce future penalties by paying as much of the balance as possible by the March 31 deadline.
This penalty relief program also extends to taxpayers who already paid their overdue 2020 and/or 2021 tax. In most cases, if the balance they paid included penalties now covered by the waiver, they will receive an IRS refund in 2024.
Note that this special penalty waiver applies only for taxpayers with unpaid tax balances of less than $100,000 per tax return. Those who owe a greater amount of overdue tax from 2020-2021 will not receive automatic penalty relief, but may still be able to apply for penalty reductions under existing IRS programs.
Instead of waiting for a mailed notice, taxpayers with online IRS accounts may check those accounts to find their updated balances after the penalty waiver. The IRS has completed these account updates for individual taxpayers, and expects to complete them for businesses by mid-January. Trusts, estates and tax-exempt organizations may not see their online account balances updated until early March.