Typically speaking, using the words "surprise" and "IRS" together wouldn't evoke the most positive emotions in people. Many might assume that a message from the agency out of the blue means they're getting audited or have to pay a hefty fine for underpayment. With 2023 filings due in April, most taxpayers are likely hopeful they'll be able to get everything in without hearing a thing from the agency. But now, some might be shocked to learn about the latest alert from the IRS that could mean surprise refunds for many Americans.
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In a press release on Dec. 19, the IRS announced it would provide relief for about 4.7 million taxpayers, businesses, and organizations that owe back taxes. In all, the agency said it would be providing roughly $1 billion in penalty relief, mainly for those making under $400,000 a year.
The IRS explained that it had stopped sending out automated follow-up collection notices in the mail in February 2022 due to the effects of the COVID-19 pandemic on its operations. However, the agency said that those who weren't notified still accrued failure-to-pay penalties despite not being informed.
"As the IRS has been preparing to return to normal collection mailings, we have been concerned about taxpayers who haven't heard from us in a while suddenly getting a larger tax bill. The IRS should be looking out for taxpayers, and this penalty relief is a common-sense approach to help people in this situation," IRS Commissioner Danny Werfel said in a statement. "We are taking other steps to help taxpayers with past due bills, and we have options to help people struggling to pay."
The relief will apply to individuals, businesses, and other organizations that filled out Forms 1040, 1120, 1041, and 990-T income tax returns for the 2020 and 2021 tax years for those who owe less than $100,000. The agency said that the earmarked amount averages out to about $206 per return and that they will notify those who are eligible by mail starting next month.
According to the IRS, recipients will see the penalty relief automatically applied to their balance. Taxpayers who already finished paying off back taxes from those years with a failure-to-pay penalty will also still receive a credit towards another outstanding bill. However, the agency specified that it could not legally waive any interest incurred on late payments due.
The IRS added that penalties on the funds will resume again on April 1 of next year. It also laid out ways that people struggling with financial burdens could get things under control.
"The IRS wants to help taxpayers and provide them easy options to deal with unpaid tax bills and avoid additional interest and penalties," Werfel said in the statement. "People receiving these notices should remember that there are frequently overlooked options that can help them set up an automatic payment plan or catch up with their tax filings."
