The IRS recently announced the waiver of approximately $1 billion in common penalties for taxpayers who faced delays in paying their taxes during the pandemic. This decision aims to bring relief to nearly five million taxpayers who may have been unaware of accumulating balances from tax years 2020 and 2021. The IRS had temporarily suspended notices of overdue taxes in February 2022.
The waiver applies to penalties on overdue 2020 and 2021 taxes that were imposed after the halt in reminder notices. In cases where penalties were already paid, the IRS will refund and credit the amounts. Penalties for late tax payments can accrue at a rate of 0.5 percent per month, reaching a maximum of 25 percent.
However, the IRS clarified that it is not providing relief for interest charges on 2020 and 2021 taxes that were not paid on time due to statutory limitations. IRS Commissioner Danny Werfel explained that the relief extends to individuals, certain tax-exempt organizations, and companies that filed returns for tax years 2020 and 2021, owing less than $100,000 for each of those years.
The agency cited logistical and resource-related challenges during the pandemic as a significant factor in its decision, as it had ceased sending automated notices in February 2022. Starting next month, the IRS will resume mailing reminders for overdue payments from tax years 2020 and 2021. Taxpayers may be surprised by the increased bills, now including interest and penalties.
To illustrate the relief provided, the IRS will issue a special reminder letter to eligible taxpayers in January, outlining their overall liability, the amount of waived penalties, and instructions on how to address their obligations.