IRS to refund a ‘very welcome’ $1.2 billion in late-filing fees for nearly 1.6 million taxpayers

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The IRS on Wednesday announced it will waive penalties for many Americans who late-filed tax returns during the pandemic.

Nearly 1.6 million filers will automatically receive a collective $1.2 billion-plus in penalty refunds or credits, according to the federal agency, with many payments expected to come by the end of September.  

The relief applies to many individuals and businesses that filed tax returns for 2019 and 2020 late, the IRS said. 

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

“The penalty relief issued today is yet another way the agency is supporting people during this unprecedented time,” he said.

The waiver applies to the agency’s late filing penalty of 5% of your unpaid balance per month, capped at 25%. Late payment penalties of 0.5% per month may still apply.

Eligible tax returns include individual, corporate, estates and trusts and more, according to an IRS notice. However, you must file the tax returns by Sept. 30 to qualify, the IRS said.

Tax pros say IRS penalty relief is ‘very welcome’

The announcement comes as the IRS faces ongoing criticism for a backlog of unprocessed tax returns, despite promises from Rettig that the pileup will “absolutely” resolve before December.

As of Aug. 12, there were 9.3 million unprocessed individual returns from 2022, according to the IRS, including 7.6 million paper filings.

This relief is “very welcome,” said Albert Campo, a CPA and president of AJC Accounting Services in Manalapan, New Jersey.

Covid-19 has “greatly impacted” the agency’s ability to process paper, Campo explained, and missing returns have triggered notices, further adding to the pileup when filers respond.

“With this broad relief, the burden on taxpayers, tax professionals and IRS staff should be alleviated to some extent,” he said.

The IRS has been “working aggressively” to process backlogged returns and taxpayer correspondence, aiming to return to “normal operations” for the 2023 filing season, according to the notice. And the penalty relief will allow the agency to “focus its resources more effectively,” the agency said.

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