IRS will wipe away $1.2B in late fees from pandemic

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

The IRS estimates that nearly 1.6 million taxpayers will receive more than $1.2 billion worth of penalty relief. The tax agency will automatically issue the refunds or credits for most of the fees by the end of September. 

“Throughout the pandemic, the IRS has worked hard to support the nation and provide relief to people in many different ways,” IRS Commissioner Chuck Rettig said in a statement Wednesday. “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.”

Daniel Acker/Bloomberg

Tax returns for 2019 and 2020, which were due to the IRS in the 2020 and 2021, will be eligible for the relief. 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.

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.

The IRS has been criticized for not doing enough to help taxpayers meet their filing obligations. Long wait times and not enough customer service representatives has 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. The IRS also paused sending notices and automated collections to individuals earlier this year after pressure from Congress to stop those mailings until the backlog is reduced.

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