Taxes: IRS waives penalty for taxpayers with tax bills from 2020 and 2021

Nearly 5 million taxpayers who have unpaid tax bills from 2020 and 2021 will have almost $1 billion in penalty fees waived by the Internal Revenue Service (IRS).

The IRS announced penalty relief in December for taxpayers who had outstanding tax bills but were not sent automated collection reminder notices during the pandemic. Though the notices did not go out in 2020 and 2021, the failure-to-pay penalty accrued for taxpayers who did not fully pay their bills.

"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. The IRS should be looking out for taxpayers, and this penalty relief is a common-sense approach to help people in this situation," IRS Commissioner Danny Werfel said in a statement. "We are taking other steps to help taxpayers with past-due bills, and we have options to help people struggling to pay."

The mailed IRS notices, which should start hitting mailboxes this month, outline the amount of penalty relief received. Taxpayers can also check IRS.gov to access their tax transcripts and records.

Full coverage: Taxes 2024 — Everything you need to file your taxes on time

What to know about the failure-to-pay waiver provision

The penalty relief is automatic for taxpayers who owe back taxes, though it’s limited to tax bills of $100,000 or less, Rob Seltzer, a certified public accountant (CPA) at Seltzer Business Management, told Yahoo Finance.

"If a taxpayer already paid the penalty before the relief was announced, they will automatically be refunded," he added.

If the taxpayer is not eligible for this relief, the IRS recommends applying for relief under the First-Time Abate program.

Another thing impacted taxpayers need to consider is interest, which the IRS did not waive.

"While penalties can be the larger amount, there will still be interest due on the outstanding balance until paid in full," Janet Lee Krochman, a certified public accountant (CPA), told Yahoo Finance.

Taxpayers should talk to their tax professional if they have questions on the penalty waiver or interest.

Taxpayers should also be aware of scammers pretending to be the IRS.

"The IRS will be sending letters, not emails or texts, and the IRS will not ask for payment via gift cards," Lawrence Pon, a CPA at Pon & Associates, told Yahoo Finance. "Any payments to the IRS can be made by check to the address on the letter or can be paid electronically to the IRS from your bank account or using a credit or debit card."

Ronda is a personal finance senior reporter for Yahoo Finance and attorney with experience in law, insurance, education, and government. Follow her on X @writesronda

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