IRS Offering Tax Penalty Relief for Overdue Taxes 2020-21

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Millions of taxpayers just got an early X-mas gift whether they celebrate the holiday or not. The IRS announced approximately $1 billion in tax penalty relief on overdue taxes from 2020 and 2021.

And this relief is automatic, meaning you don’t have to do anything to get it if you’re eligible.

What type of relief?

The relief is being offered for the failure-to-file penalty.

Failure-to-file penalties are charged if a taxpayer doesn’t pay the taxes they report on their tax return by the due date or if the taxpayer doesn’t pay the amount required to be shown on their return within 21 calendar days of receiving a notice demanding payment.

Failure to file penalties can be up to 25% of the tax owed.

Why the tax penalty relief?

Normally, the IRS would send a notice of overdue taxes and then later send a reminder to pay. During the pandemic, the IRS stopped sending automated notices reminding folks to pay starting in February 2022.

In its December 19 announcement about the tax penalty relief, the IRS said, as it stands, some people have not received a notice in over a year.

Who’s getting relief?

The IRS said around 4.7 million individuals, businesses, trusts, estates and organizations are affected by this move.

Most of the tax penalty relief will go to those making under $400,000, with 70% going to those making under $100,000 a year, the IRS said.

Relief will only be offered if the tax is under $100,000. But that’s $100,000 per entity, per tax year.

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Tax penalty refunds

Since the IRS is offering relief to those who still haven’t paid, it’s going to issue refunds or credits toward other outstanding tax bills for those who already paid the penalty on 2020 or 2021 tax bills.

Refunds are already being issued, and the IRS will continue through January.

Side notes

This relief is just on the failure-to-pay penalties, not the interest.

The IRS will resume the normal process of sending out reminders for overdue taxes starting in January 2024. Taxpayers who are eligible for this relief should also be aware that failure-to-pay penalties will start to rack up again in April 2024.

If you have a tax bill, and you can’t pay it in full, the IRS advises visiting IRS.gov/payments to make payment arrangements.


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