The Internal Revenue Service (IRS) said it is going to waive penalty fees for unpaid back taxes under $100,000 per year for tax years 2020 and 2021.

“Taxpayers who had a balance due for tax years 2020 and/or 2021 and did not receive balance due reminder notices due to the pandemic-related pause, may be eligible for automatic penalty relief,” the IRS said.

“Nearly 5 million people, businesses and tax-exempt organizations — most making under $400,000 per year — will be eligible for the relief starting this week,” the Associated Press reports.

In total, $1 billion in penalties is eligible for the relief.

According to the IRS:

Individual, business, estate, trust or tax-exempt taxpayers are eligible for automatic failure to pay penalty relief if they:

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  • filed a Form 1040, 1041, 1120 series or Form 990-T tax return for years 2020 and/or 2021,
  • were assessed taxes of less than $100,000, and
  • received an initial balance due notice, typically the CP14 or CP161, between Feb. 5, 2022, and Dec. 7, 2023.

They do not have to take any additional actions to receive this relief:

  • If they made payments on their account or their balance is paid in full, they are eligible for automatic failure to pay penalty relief on assessed taxes less than $100K per year. 
  • A credit will automatically be applied to any other tax year with a balance due, otherwise they will receive a refund. 
  • If their address has changed, they’ll need to update their account to make sure they receive any IRS refunds or notices. 

AP reports:

The IRS temporarily suspended mailing automated reminders to pay overdue tax bills during the pandemic, beginning in February 2022, and agency leadership says the pause in automated reminders is a reason behind the decision to forgive 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,” the IRS said 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 normal collection notices, the Tuesday announcement is meant as one-time relief based on the unprecedented interruption caused by the pandemic, IRS officials said.

“It was an extraordinary time and the IRS had to take extraordinary steps,” IRS Commissioner Daniel Werfel told reporters. He said the change will be automatic for many taxpayers and will not require additional action.

 

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