In a significant move aimed at assisting taxpayers, the Internal Revenue Service (IRS) has announced it will be waiving approximately $1 billion in penalty fees. This decision comes as a major relief for nearly 4.7 million individuals, businesses, and tax-exempt organizations. The waived penalties pertain to overdue taxes for the years 2020 and 2021.
The backdrop of this decision lies in the IRS’s response to the COVID-19 pandemic. During the pandemic, the IRS temporarily suspended the issuance of automated reminders for overdue tax bills, starting in February 2022. Although these reminders were not sent, the failure-to-pay penalties continued to accumulate for taxpayers who hadn’t fully settled their bills based on the initial notices. To address the resultant challenges faced by taxpayers, the IRS is taking several proactive steps, including the waiver of these penalties.
The relief is specifically targeted at taxpayers with unpaid taxes that totaled less than $100,000 per year for the tax years 2020 and 2021. This gesture by the IRS represents a significant financial cushion for many, including those in the middle and lower-income brackets. Notably, nearly 70% of the taxpayers benefiting from this relief earn under $100,000 per year. The average reduction in tax per eligible person for each tax year amounts to about $206.
Additionally, the IRS plans to issue special reminder letters starting next month. These letters will inform taxpayers of their outstanding liabilities, available payment options, and the extent of the penalty relief applied. Taxpayers unable to settle their full balances are encouraged to visit the IRS website for payment arrangements.
This development is a part of the IRS’s efforts to resume normal operations and collection processes, which were disrupted due to the pandemic. The agency is set to restart sending collection notices in 2024, marking the end of the pandemic-related pause.
The IRS’s decision to waive these penalties is a significant step in supporting taxpayers and marks a continuation of the agency’s efforts to adapt to the challenges posed by the pandemic.
