A handful of eligible taxpayers could see a boost to their bank accounts soon.
The IRS has announced it will be refunding $1.2 billion in tax filing penalties, meaning nearly 1.6 million people will automatically get a refund after filing certain 2019 or 2020 returns late.
Others, however, will have to act quickly in order to take advantage of the program. In order to qualify, you have to file an eligible income tax return on or by Sept. 30.
The refund goes to offset the ‘failure to file’ penalty, which the IRS says is assessed at 5% per month, up to 25% of the unpaid tax when a federal income tax return is filed.
Who is eligible?
Americans who filed forms in both the 1040 and 1120 series, or one of the forms listed in this news release, are eligible as long as they file their late 2019 or 2020 return by the September deadline.
Along with individuals, the IRS is also offering relief to banks, employers and other businesses that filed information returns such as those in the 1099 series. In those cases, eligible 2019 returns will have to have been filed by Aug. 1, 2020, and 2020 returns by Aug. 1, 2021.
Taxpayers who filed a variety of international returns, such as those reporting transactions with foreign trusts, the receipt of foreign gifts or ownership interests in foreign corporations are also included in the full guidelines from the IRS.
Qualifying international forms must also be filed on or before September 30, 2022.
People who have already paid the penalty will get a refund, while those who have been fined, but haven’t yet paid will see their fine dismissed.
When will the refund come?
For the nearly 1.6 million people who already paid the penalty and will be automatically reimbursed, the IRS says they will be issuing refunds by the end of September.
Some people will be disqualified, however, and will not see a payment – fraudulent returns, penalties levied as part of a compromise or closing argument and court-ordered penalties are all exempt.
“Penalty relief is a complex issue for the IRS to administer,” said IRS Commissioner Chuck Rettig. “We’ve been working on this initiative for months following concerns we’ve heard from taxpayers, the tax community and others, including Congress. This is another major step to help taxpayers, and we encourage those affected by this to review the guidelines.”
Other penalties, such as failure to pay a penalty, won’t be refunded. For a full list of specifics, click here.
Why is the IRS doing this?
The IRS says the $1.2 billion in refunds will help “struggling taxpayers” who were affected during the COVID-19 pandemic.
“Throughout the pandemic, the IRS has worked hard to support the nation and provide relief to people in many different ways,” said Rettig. “The penalty relief issued today is yet another way the agency is supporting people during this unprecedented time. This penalty relief will be automatic for people or businesses who qualify; there’s no need to call.”
The IRS also stated that the massive relief measure will help the tax collection agency “focus its resources on processing backlogged tax returns and taxpayer correspondence to help return to normal operations for the 2023 filing season.”