Qualifying Individuals and Businesses Eligible for IRS’s $1 Billion Penalty Waiver on Back Taxes

On Tuesday, the IRS announced the forgiveness of penalty fees for individuals with annual back taxes under $100,000 for the tax years 2020 and 2021. Approximately 5 million qualifying entities, including individuals, businesses, and tax-exempt organizations earning under $400,000 annually, will benefit from this relief, amounting to around $1 billion.

The decision to waive failure-to-pay penalties is attributed to the temporary suspension of automated reminders for overdue tax bills, initiated in February 2022 due to the pandemic.

“Due to the unprecedented effects of the COVID-19 pandemic, these reminders would have normally been issued as a follow up after the initial notice,” the IRS said in a statement.

“Although these reminder notices were suspended, the failure-to-pay penalty continues to accrue for taxpayers who did not fully pay their bills in response to the initial balance due notice.”

Although the IRS intends to recommence the regular issuance of collection notices, officials clarified that Tuesday’s announcement serves as a one-time relief measure in response to the unparalleled disruptions caused by the pandemic.

“It was an extraordinary time and the IRS had to take extraordinary steps,” IRS Commissioner Daniel Werfel told reporters. He said the change will be automatic for many taxpayers and will not require additional action.

Automatic relief is available to taxpayers who submitted a Form 1040, 1041, 1120 series, or Form 990-T tax return for either 2020 or 2021, have an annual back tax amount below $100,000, and received an initial balance-due notice between Feb. 5, 2022, and Dec. 7, 2023.