IRS Tax Penalty Relief: Do You Qualify? 

Woman receives failure-to-pay penalty relief on her taxes from the IRS.

The Internal Revenue Service (IRS) has been working to assist taxpayers who owe back taxes. On December 19, 2023, they announced a new penalty relief for approximately 4.7 million tax filers who were not sent automated collection reminder notices during the COVID-19 pandemic. The IRS suspended mailing these automated reminders in February 2022. Even though the IRS stopped sending the reminders, the failure-to-pay penalty continued to accrue for taxpayers who did not fully pay their bills. The action will provide about $1 billion in penalty relief for taxpayers who did not know they had a large bill due.

Some key points of this relief include:

  • It’s automatic – you don’t need to take action to claim it if you’re eligible
  • Only specific individuals, businesses, and other groups qualify
  • The IRS will resume sending regular failure-to-pay reminders on April 1, 2024

Read more about who qualifies and how to get relief in this article.  

Who is eligible for penalty relief?  

Several qualifications determine if you are eligible for penalty relief. You must:  

  • Be an individual, business, tax-exempt organization, trust, estate, or self-employed  
  • Have filed certain Forms 1040, 1120, 1041, and 990-T for tax years 2020 or 2021  
  • Earn under $400,000 a year   
  • Have an assessed tax under $100,000*  
  • Be in the IRS collection notice process or have been issued an initial balance due notice between February 5, 2022, and December 7, 2023  

*The $100,000 limit applies separately to each return and each entity. 

The IRS did not suspend mailing the initial balance-due notices for taxpayers, such as the CP14 and CP161 notices, so these groups should have received an initial notice. However, they did not receive the follow up notices which reminded them to pay their balance. Most of those affected have not heard from the IRS in over a year about this specific bill.

How do I take the penalty relief?  

Good news – the relief is automatic. If you are eligible, you don’t need to take action to receive it. 

If you have questions about your penalty relief, contact the IRS after March 31, 2024.  

What is the penalty relief?  

The IRS stated they will waive any penalty fees that accrued when the reminder notices were not being sent. 

The IRS has already adjusted eligible individual accounts. These adjustments took place from late December 2023 to early January 2024. Adjustments to business accounts followed soon after. Trusts, estates, and tax-exempt organizations can expect adjustments from late February to early March 2024.

Read more: Notice 2024-7  

You will still benefit from the relief if you already paid your balance. The IRS will issue you a refund or credit the relief toward another outstanding tax liability. You can see this by viewing your tax transcript. The IRS began sending the first round of these refunds in December 2023. If you do not receive a refund, the IRS may send you a special reminder notice with your updated balance in early 2024.   

What can I do if I don’t qualify for the automatic penalty relief?  

If you are not eligible for this automatic relief, you have options. You could use existing penalty relief, such as applying for relief under the reasonable cause criteria or the First-Time Abate program.   

Several payment plans can also help you with unpaid tax debts. Learn more about how to pay your tax bill

When will collection notices resume?   

The failure-to-pay penalty will resume on April 1, 2024, for taxpayers eligible for relief.   

In January 2024, the IRS began sending automated collection notices and letters to individuals with tax debts before tax year 2022. The letter will alert the taxpayer of their liability, easy ways to pay, and the amount of penalty relief if applicable. They also started sending notices to businesses, tax-exempt organizations, trusts, and estates with tax debts before 2023, with exceptions for those with existing debt in multiple years.  

The IRS will issue these balance-due notices and letters gradually in 2024 to ensure taxpayers who have questions or need help can contact the IRS.  

Why did I receive a failure-to-pay penalty notice from the IRS? 

Usually, the IRS sends regular reminders to taxpayers that they have a bill due. But due to the COVID-19 pandemic, the IRS paused sending those reminders. As a result, many individuals and businesses still need to pay their tax bills and, in some cases, have been accumulating a failure-to-pay penalty. 

How do I know if I will receive a penalty in the future?  

You may be charged a failure-to-file penalty if you owe taxes and don’t file on time. This penalty is typically 5 percent of the tax owed for each month the tax return is late, up to 25 percent.  

You may also be penalized if you don’t pay the amount on your return within 21 calendar days of receiving a notice requesting payment (or ten business days if the amount is more than $100,000).  

Learn more about the failure to pay penalty. 

Disclaimer:
This article is intended to provide general information to the public and does not provide personalized tax, investment, legal, or business advice. You should seek the assistance of a professional for advice on taxes, investments, and any other financial, legal, or business matter pertinent to your individual situation.