Americans still facing unpaid taxes from the tumultuous years of the pandemic received a mixed bag of news from the Internal Revenue Service (IRS) this week. In a surprising move, the agency announced the waiver of approximately $1 billion in failure-to-pay penalties, benefiting around 4.7 million individuals, mostly earning under $400,000 annually. The relief targets tax years 2020 and 2021, periods marked by IRS challenges such as office closures, staff shortages, and real-time regulatory adjustments due to pandemic-related disruptions, compounded by the responsibility of administering three rounds of stimulus checks.
Taxpayer Relief Amid Pandemic Chaos: Acknowledging the unprecedented challenges faced by taxpayers during these years, with virtual or non-operational tax-related services, especially affecting seniors and low-income Americans, the IRS aims to automatically waive penalties for those who still owe. Considering the ongoing accrual of penalties, the agency estimates an average penalty relief of $206 per tax return—a conciliatory gesture from the U.S. Treasury.
The Catch: Resumed Collections Notices: However, the goodwill comes with a caveat, as the IRS plans to resume automated collections notices from January onward, reinstating a process halted since February 2022. Taxpayers who appreciated the silence on outstanding tax bills will now see the end of that respite. The initial pause affected reminder letters sent to individuals with overdue taxes for years preceding 2022. IRS Commissioner Danny Werfel highlighted the agency’s concern about taxpayers receiving unexpectedly large tax bills after an extended period of non-communication. While penalty relief is a practical approach, the IRS emphasizes assistance for those struggling to pay and assures additional measures to support taxpayers with past-due bills.
Implementation and Next Steps: The IRS has already initiated adjustments for eligible individual taxpayers, with business accounts set to be addressed later this month and next. Those eligible will receive notices about the penalty relief, requiring no additional action. However, taxpayers are strongly encouraged to settle their dues promptly, as penalties will resume on April 1. On a positive note, individuals who have already paid taxes and penalties in full can anticipate receiving a credit or refund from the IRS, offering a silver lining amidst the complex tax landscape.