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The Internal Revenue Service (IRS) announced on Tuesday a penalty relief for individuals who failed to pay their taxes on time during the pandemic.

IRS Providing Penalty Relief

In a statement, the IRS said some 4.7 million individuals, businesses, and tax-exempt organizations would be eligible for the relief for tax years 2020 and 2021 starting this week, which totals around $1 billion.

The IRS noted that most of those receiving the penalty relief make under $400,000 annually and did not receive automated collection reminder notices during the pandemic. This penalty is usually five percent of the tax owed for each month.

According to Fortune, starting in February 2022, the IRS suspended mailing automated reminders to pay overdue tax bills due to the unprecedented effects of the COVID-19 pandemic.

However, the IRS noted that "although these reminder notices were suspended, the failure-to-pay penalty continues to accrue for taxpayers who did not fully pay their bills in response to the initial balance due notice."

"Given this unusual situation, the IRS is taking several steps in advance of resuming normal collection notices for tax years 2020 and 2021 to help taxpayers with unpaid tax bills, including some people who have not received a notice from the IRS in more than a year," it added.

Tuesday's announcement is reportedly meant as a one-time relief, with the IRS resuming the sending out of regular collection notices. The IRS said it will issue a special reminder letter starting next month to alert taxpayers of their liability, easy ways to pay, and the amount of penalty relief if applied.

Eligible for Automatic Penalty Relief

The IRS said the change will be automatic for many taxpayers and will not require additional action. It noted that eligible taxpayers who already paid their full balance would benefit from the relief, too.

If a taxpayer has already paid failure-to-pay penalties related to their 2020 and 2021 tax years, the IRS said it will issue a refund or credit the payment toward another outstanding tax liability.

Taxpayers who are eligible for automatic relief are those who owe less than $100,000 per year in back taxes, filed a Form 1040, 1041, 1120 series, or Form 990-T tax return for years 2020 or 2021, and received an initial balance-due notice between February 5, 2022, and December 7, 2023.

The IRS noted that the $100,000 limit applies separately to each return and each entity. The failure-to-pay penalty will resume on April 1, 2024, for taxpayers eligible for relief. Click here to learn more about the IRS' penalty relief program.

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IRS, Internal Revenue Service