- 4.6 million people, companies and organizations are eligible for the support
- The move comes after the IRS halted sending demand letters during the pandemic
- IRS Commissioner Danny Werfel said, 'People need to know the IRS is on their side'
The Internal Revenue Service is waiving nearly $1 billion in penalties for Americans who underpaid taxes for 2020 and 2021.
Starting this week, about 4.6 million people, businesses and tax-exempt organizations — most of whom earn less than $400,000 a year — will qualify for the relief, the Internal Revenue Service (IRS) said. They must owe less than $100,000 in taxes during the two years.
Americans will still have to pay the taxes they owe — but they won't be liable for the hefty late fees, which can run into the thousands or tens of thousands of dollars.
The olive branch is intended to clear the IRS's backlog after it stopped sending notice letters in February 2022. The exemption is intended as a one-time relief due to the unprecedented disruption caused by the lockdown.
Anyone who has already paid the so-called failure-to-pay penalty will receive a refund or credit to their IRS account.
Starting this week, about 4.6 million people, businesses and tax-exempt organizations — most of whom earn less than $400,000 a year — will qualify for the relief, the Internal Revenue Service (IRS) said.
“Due to the unprecedented impacts of the Covid-19 pandemic, these reminders would normally have been issued as a follow-up to the initial notice,” the IRS said in a statement.
“Although these notices have been suspended, non-payment penalties continue to accrue for taxpayers who have not paid their bills in full in response to the original notice.”
IRS Commissioner Danny Werfel told reporters, “It was an extraordinary time and the IRS had to take extraordinary steps.”
He later added, “People need to know the IRS is on their side.”
The fine is high and can pile up. It amounts to 0.5 percent of the unpaid amount for each month the tax remains unpaid, although it is limited to 25 percent of the total balance.
For those who enter an IRS payment plan, the penalty is reduced to 0.25 percent per month – or 3 percent per year.
For someone who owes $50,000 in taxes as of 2020, the penalty could be around $9,000.
The change will happen automatically for most and require no additional action.
IRS Commissioner Danny Werfel, pictured, told reporters: 'People need to know the IRS is on their side'
Taxpayers are eligible for the exemption if they filed a tax return on Forms 1040, 1041, 1120 or Form 990-T for the years 2020 or 2021.
They must also owe less than $100,000 per year in back taxes and have received an initial notice between February 5, 2022 and December 7, 2023. The exemption expires for contributions that are not paid before April 1, 2024.
Those who qualify will receive a special notice in early January to reflect their new balance, the IRS said.
About 18.6 million individual taxpayers owed the IRS $316 billion in back taxes Wall Street Journal reported. In September 2019, 16.8 million people owed $308 billion.
While the relief will provide a welcome relief to taxpayers, they will still have to pay off the interest on their balances.
By law, the IRS must charge interest on the debt – currently at a rate of 8 percent.