I.R.S. to Refund Late-Filing Penalties for 2019 and 2020 Returns
About 1.6 million taxpayers who missed deadlines for filing their 2019 and 2020 federal income tax returns will get automatic refunds of late-filing penalties under a new Internal Revenue Service pandemic relief program.
Taxpayers, including individuals and many businesses, will receive relief totaling $1.2 billion, the I.R.S. said, for an average of $750 per return.
But taxpayers have to file their returns for those years by Sept. 30 or they will miss out on the relief, the I.R.S. said.
The I.R.S. said the penalty waiver would help “struggling” taxpayers who were affected by Covid-19. It would also let the I.R.S. focus on processing a backlog of tax returns and letters that ballooned during the pandemic, helping the agency return to “normal operations” for next year’s filing season.
If you haven’t filed returns for one or both of those tax years, you should file soon and ideally file electronically, according to a blog post from the national taxpayer advocate, Erin M. Collins. She leads the Taxpayer Advocate Service, a group within the I.R.S. that works on behalf of taxpayers.
Under the I.R.S. plan, those who filed late federal returns for the tax years 2019 and 2020 and paid penalties will have the money automatically refunded. Taxpayers who filed late and were charged penalties but have not yet paid will have them canceled. (The federal filing deadline for each of those tax years was extended past the usual tax day in April because of the pandemic.)
Late-filing penalties can be significant, typically totaling 5 percent per month of the unpaid tax for individuals, up to a maximum of 25 percent. Someone owing $10,000, for instance, would owe $500 a month, up to a cap of $2,500.
Tom O’Saben, director of tax content and government relations for the National Association of Tax Professionals, said the I.R.S. had indicated that it would first apply the amount of any penalty waived to reduce liabilities owed — for example, if the taxpayer was paying a tax bill under an installment plan. Then any excess will be refunded.
The blanket relief applies only to penalties for filing late. It doesn’t apply to separate penalties often charged for failing to pay any tax due. (There is no failure-to-file penalty if your return shows that you are owed a refund.) Taxpayers may use standard relief procedures, like applying and showing a “reasonable cause” for failing to pay taxes, the agency says.
Groups representing tax professionals, including the American Institute of Certified Public Accountants, are urging the I.R.S. to extend the deadline for the late-filing refund. While it is pleased with the “unprecedented” blanket relief, the institute said in a letter to the I.R.S., a Sept. 30 cutoff is “unreasonable” because taxpayers and preparers are busy with other tasks, including the Oct. 17 deadline for those who received extensions to file their 2021 returns.
Eric L. Smith, an I.R.S. spokesman, said the agency was aware of the extension request but had no change to report. He said the agency didn’t have an estimate of how many taxpayers might be affected by the Sept. 30 deadline. In announcing the plan in late August, Chuck Rettig, commissioner of the I.R.S., said penalty relief was a “complex issue” to administer.
Here are some questions and answers about I.R.S. relief for late-filing penalties.
Do I need to take any action to get my penalty refunded?
The I.R.S. says that no application is necessary and that there is no need to call. If you paid the penalty, you will automatically receive a credit or a refund. Most eligible taxpayers will receive their refunds by the end of September, the agency said. But remember, you have to have filed the return by Sept. 30.
An “overwhelming majority” of filers will receive checks mailed to the address on file with the I.R.S. There is no option for direct deposit, except in “very rare” circumstances, according to Ms. Collins’s blog post.
How can I check on the status of my penalty check?
The best way to see if relief has been applied is to create an online account at irs.gov and check your tax transcript, Ms. Collins said. That way, you can avoid long waits on I.R.S. phone lines.
Because of the large scale of the relief program, it could take time to process checks, and “speed bumps” may occur, Ms. Collins said. She advised taxpayers to be patient and to wait until after Nov. 30 before contacting the I.R.S. to ask about penalty checks.
What if I have moved since I filed my last tax return?
If you have moved since last filing a tax return, you risk having your refund check “go astray,” the taxpayer advocate said. So, the advocate said, you should “lose no time” in updating your address with the I.R.S. You must call the I.R.S. on the phone or send in a form by mail. It can take up to six weeks to fully process a change of address, the I.R.S. website says. It may be faster to update your address online with the U.S. Postal Service. But you should still notify the I.R.S., the agency says, because not all post offices forward government checks.