In a move aimed at helping millions of taxpayers with back tax debts, the Internal Revenue Service (IRS) has announced significant penalty relief. Nearly 4.7 million tax-exempt individuals, businesses and organizations that did not receive automated collection reminder notices during the pandemic will benefit from this measure.
The IRS plans to provide about $1 billion in penalty relief, focusing primarily on those whose annual income is less than $400,000. The temporary suspension of automatic payment notices for overdue taxes starting in February 2022 has led to this action, while the penalty for non-payment has continued to accumulate for those who did not pay off their debt after the initial notice.
To ease the transition to normal processes, the IRS will issue a special reminder next month. This communication will alert taxpayers about their tax liability, available payment options, and the amount owed, if applicable. Those who cannot pay the balance in full are encouraged to visit IRS.gov/payments to set up payment arrangements.
Penalty relief will also apply to eligible taxpayers affected by the situation during tax years 2020 and 2021. The IRS estimates that approximately 5 million tax returns could receive this relief, representing a savings of about $206 per return.
Importantly, this penalty relief is automatic for eligible taxpayers, and does not require any action on their part. Even those who have already paid the nonpayment penalty related to the 2020 and 2021 tax years will be refunded or credited.
However, this relief only applies to taxpayers with taxes assessed below $100,000. Those who are not eligible still have options available, such as applying for relief under reasonable cause criteria or through the first-time fine reduction program.
Additionally, the IRS is implementing measures to assist those with outstanding tax debts, providing payment options and online tools to make it easier to manage tax obligations.
In January, the IRS will gradually resume automated collection notices and letters for those with tax debts prior to tax year 2022, ensuring taxpayers have time to understand and address their tax issues.
This penalty relief seeks to alleviate the financial burden of millions of taxpayers affected by the pandemic, providing them with options and opportunities to resolve their tax obligations in a simpler and more effective way. The IRS is committed to making it easier to comply with tax obligations and helping taxpayers avoid additional interest and penalties, ensuring a smoother transition to tax normality.
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