The IRS Is Waiving $1 Billion in Late Payment Penalties. Here’s Who Will Get Relief

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Some taxpayers are being thrown a bone by the IRS. Read on to learn more. [[{“value”:”

In 2020 and 2021, many Americans were preoccupied with the raging pandemic at hand. Some people got sick and were working on their recovery, or had to grapple with long-haul COVID-19 symptoms. Other people’s finances took a hit, and their energy was largely focused on finding work and coming up with a plan to pay their rent or mortgage.

As such, it’s easy to see how filing taxes might have fallen by the wayside during that time. Unfortunately, failing to submit a tax return on time can have negative financial consequences. So can paying a tax bill late. But now, the IRS is throwing people in the latter category a bit of a bone.

A little tax relief is now available

The IRS recently announced that it would be waiving about $1 billion in late payment penalties for taxpayers with balances of under $100,000 for returns filed in 2020 and 2021. This decision will impact an estimated 4.7 million individual tax filers, businesses, estates, and tax-exempt organizations.

Normally, a late payment penalty costs filers 0.5% of their unpaid tax bill per month or partial months they’re late, up to a total of 25%. Interest can also accrue on any unpaid sum, and that’s different from the late payment penalty, or failure-to-pay penalty, itself.

But now, the IRS is waiving this penalty for 2020 and 2021 due to the circumstances tax filers were facing at the time. Those who already paid the penalty will be issued a tax refund or credit to their account for it. However, the IRS warns that late payment penalties for unpaid balances from 2020 and 2021 will resume on April 1 this year. So while any prior penalties for those years will be waived, if you still owe a balance for those years, pay it now, before penalties start to accrue again.

Penalties aren’t completely off the table

While the IRS is waiving penalties for late payments in 2020 and 2021, it’s not doing the same for the failure-to-file penalty. The failure-to-file penalty applies to tax returns that are submitted late when a balance is due.

When there’s no balance due and a filer is owed a refund, there’s no penalty for being late with a tax return. The way the IRS sees it, anyone in that boat is effectively penalizing themself by delaying their refund, so there’s no need to pile on — not when the agency then gets to keep the money for longer.

But the failure-to-file penalty can be very costly. It’s equal to 5% of an unpaid tax bill per month or partial month a return is late, up to 25%. So if you didn’t file a tax return in 2020 or 2021 and you owe the IRS money, you may want to get moving ASAP.

What’s more, if you’re gearing up for the 2024 tax-filing season, you should make every effort to submit your 2023 return on time if you think there’s a chance you owe the IRS money. Of course, in the opposite scenario, filing on time also means seeing your tax refund hit your bank account sooner, so that’s reason enough to get moving.

But if you think you have a balance due from 2023, make sure to get your tax return submitted by April 15 so you don’t end up with a penalty on your hands. If that’s not possible, request an extension by April 15 to postpone your personal filing deadline by six months. You won’t get extra time to pay your IRS balance in that case. But an extension will give you a six-month reprieve from the failure-to-file penalty if you’re late with your return itself.

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