IRS will wipe away $1.2 billion in late fees accrued during the pandemic

On Wednesday, the Internal Revenue Service announced that it will wipe out late fees for taxpayers who struggled to file their tax returns on time during the pandemic.

Based on estimates from the IRS, nearly 1.6 million taxpayers will receive more than $1.2 billion worth of penalty relief thanks to this action. The tax agency will automatically issue the refunds or credits for most of the fees by the end of September.

Income tax returns for 2019 and 2020, which were due to the IRS in 2020 and 2021, will be eligible for late-fee relief. Forgiving the penalties for late-filed returns is the latest move by the IRS to ease tax compliance. The agency extended the tax filing deadline in both 2020 and 2021 to give taxpayers more time to submit their returns and pay what they owe.

IRS Commissioner Chuck Rettig said in a statement Wednesday, “Throughout the pandemic, the IRS has worked hard to support the nation and provide relief to people in many different ways. The penalty relief issued today is yet another way the agency is supporting people during this unprecedented time. This penalty relief will be automatic for people or businesses who qualify; there’s no need to call.”

Taxpayers must file any late returns by Sept. 30, 2022, to get the late fees forgiven. Penalties for failing to file a tax return can be as much as 25% of the unpaid levies. The IRS will not forgive penalties for failing to pay or in situations where fraudulent returns were filed, the agency said. 

The IRS has been criticized in the past for not doing enough to help taxpayers meet their filing obligations. Long wait times and not enough customer service representatives have made it difficult to get any questions answered by the IRS. The IRS has also been criticized for a large backlog of paper returns, which means that millions of taxpayers have filed and paid taxes that the agency has been unable to process for weeks or months. 

After pressure from Congress to stop those mailings until the backlog is reduced, the IRS paused sending notices and automated collections to individuals earlier this year.  

The IRS said abating the penalties from tax seasons affected by the pandemic will help clear the backlog of returns that still need to be processed.