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Failure-to-Pay Penalty Relief for Tax Years 2020 and 2021

Accounting Firm, Boulder CO

When it comes to taxes, several penalties can be assessed if you don’t do things as required by the IRS. One of these is the Failure-to-Pay penalty. It kicks in if you don’t pay what you owe by the original due date on your tax return. The amount of the penalty depends on how much you owe and how late you are.

In February 2022, the IRS hit a pause on sending automated reminders for overdue tax payments. These reminders are normally sent after the initial notice of taxes due. Even though you weren’t getting these reminders because of the pause, the penalties and interest kept piling up if you didn’t pay the balance in full after the initial notice.

Next year, the IRS is hitting play again on sending reminder notices for tax years 2020 and 2021. The increase in penalties and balance due might catch you by surprise, especially if this is the first notice you’ve seen in over a year.

But on December 19th, 2023, the IRS announced some good news! They’re offering penalty relief for around 4.7 million taxpayers dealing with back tax issues, specifically those who weren’t sent reminders. The IRS is waiving the Failure-to-Pay penalties for eligible taxpayers. This is a one-time deal and not everyone qualifies. To get the relief, you must meet a few conditions:

  • You’re an individual, business, trust, estate, or tax-exempt organization.
  • You filed forms 1040, 1120, 1041, or 990-T income tax returns.
  • Your return was for tax years 2020 or 2021.
  • The tax you owe is less than $100,000 (that’s the total tax on your return).
  • You were in the IRS collection notice process, -or-
  • You received an initial balance due notice between Feb 5, 2022, and Dec 7, 2023.

According to the IRS, you don’t have to do anything to get this relief; it’s automatic. The IRS has adjusted individual accounts, and they’ll be adjusting business accounts in late December to early January. Trusts, estates, and tax-exempt organizations are up next in late February and early March 2024.

If you’ve already paid your balance in full, and the relief leads to a refund or credit, the IRS will send you a refund or apply the credit to another outstanding balance. Refunds are scheduled to be sent from December 2023 through January 2024.

However, even though the adjustment is automatic, it wouldn’t hurt to check your account if you believe you are eligible. You can see the adjustment on the next reminder you receive, or you can view your transcript through your account at irs.gov. If you have questions on penalty relief, individuals can contact the IRS after March 31, 2024.

This relief only covers the Failure-to-Pay penalty. If you have other penalties on your account, such as failure-to-file, accuracy-related, or underpayment penalties, they’re not going away. And the interest stays put as well.

Unfortunately, all good things must come to an end. If you were enjoying the break from failure-to-pay penalties, they’re making a comeback on April 1, 2024, for accounts that still owe money by then.

This penalty relief will help millions of taxpayers catch up on the amounts they owe the IRS, but for most people it will not erase their entire balance. If you’d like help with assessing your options or want to verify that the adjustment was done correctly, contact your tax professional.

About Treu Accounting
Treu Accounting is a results-driven small business accounting expert, delivering services designed to build resilience and exceed goals. Treu Accounting tailors our services to fit your unique needs. We provide opportunities for an ongoing conversation from the initial consultation to understand you and your business to the customized proposal, to ensure you get what you need.
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