If you didn’t pay taxes on time in 2020 and 2021, the IRS has good news. You don’t have to pay normal penalties.
Why? Because the pandemic disrupted so many routines.
Here’s what you need to know.
Background
Millions of businesses, including the IRS, ceased or limited their operations during the COVID-19 pandemic.
While lockdowns and masks were the norm, the IRS stopped sending automatic collection notices. Usually, taxpayers and businesses that owed money would receive letters explaining their debt and the consequences of not paying. But this didn’t happen for millions of entities that failed to pay 2020 and 2021 taxes.
“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 explained 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.”
The department found a solution that helped taxpayers. It decided to waive penalties for those who filed their 2020 or 2021 taxes late.
The relief was automatically applied to most eligible taxpayers’ bills. You’re eligible if:
- owe less than 100,000 per return
- received a balance-due notice for taxable year 2020 or 2021 on or before Dec. 7, 2023.
Those who paid their penalty before it was waived will receive a refund.
“It was an extraordinary time, and the IRS had to take extraordinary steps,” IRS Commissioner Daniel Werfel said.
FAQs
How do I know if my penalty has been waived?
If you received a balance-due notice for taxable year 2020 or 2021 on or before Dec. 7, 2023, and owe less than $100,000 per return, your penalty was automatically waived. Check your tax transcripts online.
What happens if I already paid my penalty?
If you’re eligible for relief and paid a penalty for late payment of 2020 or 2021 taxes before the waiver was announced, you will receive a refund for that amount.
Is this relief available for all types of taxes?
No, this relief only applies to penalties for late payment of income taxes. Other types of taxes may still have penalties applied.
Do I still have to pay my tax bill?
Yes. This tax abatement only applies to penalties and not the actual tax amount owed. You are still required to pay your 2020 and 2021 taxes.
What penalties are generally applied to late tax bills?
Penalties for late payment of taxes can vary depending on the type of tax and the amount owed. Generally, taxpayers can face a penalty of 0.5% of the unpaid taxes for each month or partial month the bill is overdue, up to a maximum penalty of 25%. This relief only applies to these late payment penalties and not any other fees or interest charges that may be applied.
Will this relief apply to tax years after 2021?
No. The IRS’ decision only applies to late payment penalties for taxable years 2020 and 2021.
Summary
Millions of people and businesses struggled to pay their taxes during the pandemic. The IRS’ decision to waive 2020 and 2021 late-payment penalties acknowledges these difficulties and aims to help.
“People need to know the IRS is on their side,” Werfel said.
While this relief only applies for two tax years, other options are available if you can’t pay your tax bill. Reach out to the IRS or consult with a tax professional for guidance. At Kondler & Associates, CPAs, we can help you understand your bill and create a plan to address any tax issues. Contact us today to schedule a consultation.
