‘It’s a real benefit’: The IRS has good news if you filed your taxes late during the pandemic – but you need to act before this deadline
By Andrew Keshner
The IRS automatically refunds certain taxpayers who have already paid the “failure to report” penalty.
The Internal Revenue Service gets grumpy when people don’t file their income taxes on time, either by skipping an extension request, filing past the extension deadline, or not submitting their tax return at all.
That’s no surprise, and the IRS is issuing a hefty “failure to report” penalty to underscore its displeasure. This is 5% unpaid tax for each month late, which makes it more expensive than the “non-payment” penalty which levies a 0.5% ding for each unpaid month of tax. The IRS also charges interest on penalties.
Yet here’s something that might come as a pleasant surprise: The IRS is giving late taxpayers a break by waiving the failure to file penalty applied to returns for the 2019 and 2020 tax years.
It’s a nod to the ravages of the early stages of the pandemic, when taxpayers and the IRS jostled each other. IRS and Treasury Department officials have pushed back 2019 tax returns originally due on April 15, 2020, to July 15. The following year, they pushed back the 2020 tax deadline to May 17, 2021. It’s also a way for the IRS to focus on a backlog in processing tax returns.
The best news for the newly announced penalty waiver? In many cases, people don’t need to do a single thing to get relief.
The IRS says it is automatically refunding people who have already paid the penalty, estimating it will refund or credit $1.2 billion in penalties imposed on nearly 1.6 million taxpayers. Most of those payments will take place by the end of September, the tax agency said
Dividing the number of eligible taxpayers by the amount, the average refund could be $750. But actual refunds will vary greatly depending on the size of the tax debt and the time before filing by the taxpayer.
There’s more good news, but with a catch fast approaching: anyone who still hasn’t filed their returns from those years can still avoid the filing penalty when submitting the return before the 30 September, the tax agency said. But the chance to skip the penalty disappears after this date.
Most people about to get the relief have already filed the qualifying tax returns a long time ago. But that last little window is definitely worth it for people who haven’t filed yet. “That’s a real benefit, and the first thing, the most important thing, is to file the returns,” said Tom O’Saben, director of tax content and government relations at the National Association of Tax Professionals. .
O’Saben saw the results in his own tax practice. The IRS recently reimbursed one of its clients $69 for a 2019 return filed after the deadline and extensions. (O’Saben did not handle the late comeback at issue.)
There are two reasons why penalty relief is worth understanding. At a time when costs are high and continue to rise, every bit of extra money helps. Also, the September 30 deadline for action is a red-letter reminder of another impending tax deadline, October 17.
This is when people should file their most recent 2021 tax returns without penalty if they get an extension. The IRS estimates that 19 million taxpayers requested more time to file their federal income tax returns this year.
After Oct. 17, they will face failure to file penalties, as will people who failed to follow through on the temporary waiver that ends soon for the previous two tax returns.
Remember which penalty is – and is not – waived
The IRS grants a break on the failure to file penalty, but it does not apply the relief to the failure to pay penalty. Each penalty amounts to 25% of the unpaid tax, but the filing penalty accrues more money sooner. This is why tax professionals constantly advise taxpayers to always file a return or at least submit a request for an extension within the tax period to avoid the penalty for failure to file.
According to H&R Block (HRB), the combined maximum penalty for non-payment and non-production is 47.5%.
Remember that the IRS can develop installment plans on unpaid tax liabilities or an “offer in compromise” when taxpayers say they cannot pay the entire tax debt, but can conclude an agreement for a lesser sum. “The IRS is extremely willing to work with taxpayers once this return is filed,” O’Saben said.
If taxpayers still have unpaid tax debts amid penalty waivers, O’Saben said the waived penalty money is first applied to the amount owed before any checks arrive.
Also keep in mind that if taxpayers need to get a refund, the IRS notes that there is no penalty for failing to file. But people only have three years from the original due date to claim the refund. After that, it’s government money.
Generally speaking, eligible taxpayers should expect a paper check on the penalty-related refund, IRS spokesman Eric Smith said. Around or before that date, Smith said they should expect a written notice from the tax agency advising them of the action.
“This penalty relief will be automatic for eligible individuals or businesses; there is no need to call,” IRS Commissioner Charles Rettig said when the IRS announced the waiver last month.
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The penalty waivers will also allow the IRS to focus its staff on clearing a backlog of returns, the agency noted. As of early September, the IRS still had 7.2 million unprocessed tax returns.
For people who haven’t filed yet
Move quickly and submit the return electronically instead of sending a paper return, O’Saben said.
Indeed, the same advice to act quickly and avoid paper returns applies to taxpayers who still haven’t filed their 2021 tax return and are approaching the Oct. 17 deadline, he noted.
The IRS is bogged down in too much paper. Of the 7.2 million tax returns awaiting review by the IRS, 5.6 million are unprocessed paper returns.
Don’t wait for those 2021 returns that haven’t been filed yet, the IRS has been saying for months. “If a taxpayer has all the information needed to file an accurate return, they can do so electronically any time before the October deadline and avoid a last-minute rush,” the agency noted earlier this week. summer.
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