Finances and Taxes

Did You Pay a Penalty for Filing Taxes Late? The IRS May Provide a Refund

Olivia Jones  
hand signing tax form with a pencil

The Internal Revenue Service (IRS) recently announced a new initiative of tax penalty forgiveness for eligible taxpayers. The program will provide refunds for certain individuals and businesses who paid failure to file penalties on their tax returns in 2019 or 2020. As part of this program, the IRS will provide 1.6 million taxpayers refunds that total roughly $1.2 billion. Read on for details about the penalty forgiveness program, find out if your business qualifies, and what action may be necessary on your part.

Why is the IRS offering penalty refunds?

Conditions during the beginning of the COVID-19 pandemic caused many taxpayers and businesses to file their taxes late. Many individuals were sick or unable to access tax filing resources normally offered by the IRS. The IRS was also experiencing a significant backlog of paper tax returns at the time. Offering penalty refunds is the department’s way of remediating the complicated and sometimes unfair circumstances during the pandemic that resulted in many failure to file penalties. It also helps clear up the IRS tax return backlog in preparation for the upcoming tax filing season.

Who qualifies for a penalty refund?

You or your business may qualify for a refund if you were charged a failure to file penalty for the 2019 or 2020 tax years. These penalties can add up– they are usually charged at 5 percent each month a return is late, up to 25 percent of the unpaid tax. If you haven’t filed those income tax returns yet, you must do so by September 30th, 2022 in order to be eligible for a refund. For a full list of the types of returns included in the penalty relief program, refer to this notice from the IRS.

Please note that the failure to file penalty is the only penalty included in this relief program. Other penalties are not included, but may be eligible for other assistance from the IRS such as through the First Time Abate program. Visit the IRS website to learn more.

What should I do to receive my penalty refund?

As long as you’ve filed your late tax return by the new deadline and you meet the other eligibility requirements, you should receive your refund automatically, with no further action necessary on your part. You don’t need to apply for a refund or contact the IRS. Most people who qualify will receive a check from the IRS along with an explanatory notice. If you have other outstanding debts with the IRS, your refund may be credited against those debts instead of offered via check. If you were issued a failure to file penalty during the relevant period but have not paid it yet, the penalty will simply be removed.

When will I receive my penalty refund?

According to the IRS, most eligible taxpayers should receive their refund by the end of September. 

As long as the penalty refund rollout continues as scheduled, 1.6 million Americans will receive penalty refunds in the next few weeks. If you think you may qualify, keep an eye out for a notice and check in the mail from the IRS. And in the future, filing your taxes electronically is a great way to prevent delays in refunds or unnecessary penalties.

If you have any further questions, consult the IRS press release on the topic, the full text of notice 2022-36, or your accountant.

Olivia Jones
Olivia Jones Olivia Jones is a freelance writer and former HR professional. She writes about HR and education for tech companies around the world.
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