Updated Dec 20, 2023 - Economy

IRS delivers Christmas gift: $1 billion in tax penalties waived

Illustration of Benjamin Franklin and hearts wrapping paper with large bow

Illustration: Eniola Odetunde/Axios

Days before Christmas, the Internal Revenue Service said it is waiving $1 billion in tax penalties for 4.7 million individuals, businesses and organizations who owe back taxes.

Why it matters: The rare relief is about $200 on average for each affected taxpayer and about 70% of those affected have household incomes below $100,000, the IRS announced Tuesday.

What's happening: The IRS said taxpayers who owe on their 2020 and 2021 taxes could be eligible for relief depending on the amount of their tax bill.

  • The agency said it's waiving the penalties because it stopped mailing automated reminders in February 2022 because of the pandemic.
  • The failure-to-pay penalty has continued to accrue for taxpayers who didn't fully pay their bills after the initial balance due notice.
  • The IRS said it plans to resume sending out normal collection notices for tax years 2020 and 2021.

What they're saying: "As the IRS has been preparing to return to normal collection mailings, we have been concerned about taxpayers who haven't heard from us in a while suddenly getting a larger tax bill," IRS Commissioner Danny Werfel said in a statement.

  • "The IRS should be looking out for taxpayers, and this penalty relief is a common-sense approach to help people in this situation," Werfel said.

How it works: The penalty relief will be automatic and eligible taxpayers won't need to take any action, the IRS said.

  • The relief applies to eligible taxpayers with assessed tax under $100,000 for each return, according to the IRS.
  • Taxpayers still have to pay the taxes, just not the fees that have accumulated.

Meanwhile, eligible taxpayers who already paid the failure-to-pay penalties related to 2020 and 2021 taxes will get a refund or credit.

  • The IRS said it will send the first round of refunds "starting now through January 2024."

What's next: The failure-to-pay penalty will resume on April 1, 2024, for taxpayers eligible for relief.

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