IRS Provides Penalty Relief for 2020 and 2021 Tax Returns

CPA and IRS

IRS Zaps Nearly $1 Billion in Penalties for Taxpayers

Americans who owe back taxes will be given an incentive to pay up after the Internal Revenue Service said it would waive nearly $1 billion in late-payment penalties. Roughly 4.6 million individual taxpayers who owe for tax years 2020 and 2021 will be eligible for the penalty relief. Consulting a CPA can help you understand these changes.

The penalty relief applies to taxpayers who owe under $100,000 in taxes for 2020 or 2021 who received an initial balance due notice on or before Dec. 7, 2023. The relief expires for debts not paid by April 1, 2024. Eligible taxpayers will receive a special notice in early January reflecting their new balances due, the IRS said. Those who already paid these penalties will get a refund or credit on their IRS account as early as this week, Werfel said.

If you owed taxes for the years 2020 or 2021 and didn’t get reminders due to the pandemic, you might not have to pay penalties. A CPA can provide guidance on how this penalty relief affects your specific situation.

Here’s what this Penalty Relief means:

The IRS will forgive penalties for not paying taxes on time if you owed less than $100,000 for 2020 or 2021. Penalty Relief applies to individuals, businesses, estates, trusts, or tax-exempt organizations if you:

  • Filed a tax return (like Form 1040 or 1120) for 2020 or 2021.
  • Owe less than $100,000 in taxes.
  • Got a notice (like CP14 or CP161) between February 5, 2022, and December 7, 2023.

You don’t need to do anything extra to get this relief:

  • If you paid your taxes or have no outstanding balance, you’ll get the penalty relief.
  • If you owe for other years, the penalty will be reduced, or you’ll get a refund.
  • Update your address if it has changed to receive IRS refunds or notices.

If you owe more than $100,000, you can’t get automatic relief. But you can apply for relief with a good reason or use the First-Time Abate program. A CPA can assist you in applying for this relief and ensure you meet all the necessary criteria.

You can check your relief details in your tax transcript. If you have questions, contact the IRS after March 31, 2024. For personalized assistance, consulting a CPA is highly recommended.

For people who can’t pay their taxes:

IRS letters tell you what to do and often have QR codes to help you online. Don’t wait because tax bills grow with fees and interest. Not responding can lead to serious IRS actions like liens or levies.

Visit the IRS website for resources on payment options and unfiled returns.

If you can’t pay all at once:

  • Payment plans: You can set up a plan online or through IRS bots. Some plans have setup fees.
  • Offer in Compromise: This can reduce your total debt. Check if you qualify and follow the IRS video guide.
  • Temporarily delay collection: Ask the IRS for a delay if you can’t pay right now.

What if you don’t make arrangements to pay?

The IRS can take these actions:

  • Federal tax lien: The IRS can claim your property if you don’t pay your taxes.
  • Notice of Federal Tax Lien: This tells creditors that the IRS has rights to your property.
  • Levy: The IRS can seize your property or money to pay your tax debt.
  • Notice of Intent to Levy: You’ll get this before a levy. Respond within 30 days.
  • Summons: You may be legally required to meet with the IRS.
  • Passport actions: If you owe a lot, the IRS can stop you from getting or renewing a passport.