IRS Grants Penalty Aid for five Million Tax Returns from 2020-2021

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By smarttaxservice


Look who’s moving into the vacation spirit! The IRS introduced a brand new penalty aid to assist those that owe again taxes. This may impression roughly 4.7 million people, companies, and tax-exempt organizations that weren’t despatched automated assortment reminder notices throughout the pandemic. This aid will present about $1 billion in penalty aid, and most of these receiving the penalty aid make below $400,000 a yr. 

TL;DR

  • This penalty aid is computerized 



  • Taxpayers who could also be eligible embody people, companies, trusts, estates, and tax-exempt organizations   



  • To qualify for this aid, the taxpayers assessed tax should be below $100,000 



  • Taxpayers should have filed sure revenue tax returns for tax years 2020 or 2021 and should have been within the IRS assortment discover course of or issued an preliminary steadiness due discover between Feb. 5, 2022, and Dec. 7, 2023 



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



  • Taxpayers who should not eligible for this computerized aid even have choices and will use current penalty aid procedures 

IRS Affords Penalty Aid and Particular Reminder Letter for Overdue Tax Payments

This aid comes after the IRS had quickly suspended the mailing of automated reminders to pay overdue tax payments beginning in February 2022. These reminders would have usually been issued as a follow-up after the preliminary discover. Though these reminder notices had been suspended, the failure-to-pay penalty continues to accrue for taxpayers who didn’t absolutely pay their payments in response to the preliminary steadiness due discover. 

Because the IRS takes steps to renew regular assortment notices for tax years 2020 and 2021, the IRS will likely be issuing a particular reminder letter, beginning in January 2024. The letter will alert the taxpayer of their legal responsibility, straightforward methods to pay, and the quantity of penalty aid, if utilized. In the event you owe and are unable to pay your full steadiness the IRS urges you to go to IRS.gov/funds to make preparations to resolve your invoice.

Furthermore, the IRS can also be taking steps to waive the failure-to-pay penalties for eligible taxpayers affected by this case for tax years 2020 and 2021. The IRS estimates 5 million tax returns are eligible for the penalty aid, representing $1 billion in financial savings to taxpayers, or about $206 per tax return. This penalty aid is computerized. 

What motion is required for eligible taxpayers to profit from IRS changes?

In late December 2023 to early January 2024, the IRS will first start adjusting eligible particular person accounts after which comply with with changes to enterprise accounts. Trusts, estates, and tax-exempt organizations can anticipate changes in late February to early March 2024. Practically 70% of particular person taxpayers receiving this penalty aid have revenue below $100,000 a yr. 

“Eligible taxpayers don’t must take any motion to get this aid – it’s computerized. Eligible taxpayers who already paid their full steadiness will profit from the aid, too.”

Eligible taxpayers don’t must take any motion to get this aid – it’s computerized. Eligible taxpayers who already paid their full steadiness will profit from the aid, too; if a taxpayer already paid failure-to-pay penalties associated to their 2020 and 2021 tax years, the IRS will situation a refund or credit score the fee towards one other excellent tax legal responsibility. 

Who’s eligible for penalty aid below the brand new IRS pointers?

The penalty aid solely applies to eligible taxpayers with assessed tax below $100,000. Eligible taxpayers embody people, companies, trusts, estates, and tax-exempt organizations that filed sure Varieties 1040, 1120, 1041, and 990-T revenue tax returns for tax years 2020 or 2021 with an assessed tax of lower than $100,000, and that had been within the IRS assortment discover course of  — or had been issued an preliminary steadiness due discover between Feb. 5, 2022, and Dec. 7, 2023. 

The IRS notes that the $100,000 restrict applies individually to every return and every entity. The failure-to-pay penalty will resume on April 1, 2024, for taxpayers eligible for aid. 

What are the choices for taxpayers not eligible for computerized aid?

Taxpayers who should not eligible for this computerized aid even have choices. They might use current penalty aid procedures, similar to making use of for aid below the affordable trigger standards or the First-Time Abate program. 

IRS Will Resume Automated Assortment Notices and Letters for Unpaid Taxes in 2024

The IRS reminds taxpayers that there are a selection of fee choices and on-line instruments that may assist taxpayers with unpaid tax money owed, even when it’s a brand new tax invoice or a long-standing tax debt for an unfiled return. The IRS additionally encourages taxpayers to get an IRS On-line Account, the place they’ll see details about an unpaid tax invoice or apply for an on-line fee plan.

​​The IRS will begin sending automated assortment notices and letters to individuals with tax money owed from earlier than 2022, and companies, tax-exempt organizations, trusts and estates with tax money owed from earlier than 2023, with some exceptions for these with current debt over a number of years. The IRS had paused these notices and letters because of the pandemic and excessive inventories, however they are going to steadily begin resuming over the subsequent few months. Taxpayers with tax debt from the present yr 2022 and third quarter 2023 for companies have already began receiving automated assortment notices this fall. 

The pause in assortment mailings solely affected follow-up reminder mailings. The IRS didn’t cease sending the preliminary steadiness due notices for taxpayers, such because the CP14 and CP161 notices. 

Some taxpayers who’ve had a tax debt for a very long time haven’t acquired a proper letter or discover from the IRS in over a yr because of the pause. To assist these taxpayers as regular processes resume, the IRS will situation a particular reminder letter, beginning subsequent month, to alert them of the legal responsibility and direct them to contact the IRS or make different preparations to resolve the invoice. Tax professionals and taxpayers will see these reminder letters within the type of letter LT38, Reminder, Discover Resumption. 

After receiving the reminder mailing, taxpayers with long-standing unresolved tax points will obtain the subsequent discover, informing them of a extra critical step within the tax assortment course of. 

The IRS urges taxpayers to learn any letter or discover they obtain fastidiously earlier than calling the IRS. There are additionally essential sources obtainable to get assist for tax debt on IRS.gov. 

The IRS will situation these steadiness due notices and letters steadily subsequent yr to make sure taxpayers who’ve questions or need assistance are in a position to attain an IRS assistor. 

It doesn’t matter what strikes you made final yr, TurboTax will make them depend in your taxes. Whether or not you need to do your taxes your self or have a TurboTax Professional file for you, we’ll be sure to get each greenback you deserve and your greatest attainable refund – assured

Katharina Reekmans
Katharina Reekmans

Katharina Reekmans is an Enrolled Agent and a contributor to the TurboTax Weblog workforce. Katharina has years of expertise in tax preparation and illustration earlier than the IRS. Her passions encompass monetary literary and tax legislation interpretation. She has a powerful dedication to utilizing all sources and data to greatest serve the curiosity of shoppers. Katharina has labored as a senior tax accountant, operations supervisor, and controller. Katharina prides herself on unraveling tax legal guidelines in order that the common individual can perceive them. Extra from Katharina Reekmans



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