During the height of the Covid-19 pandemic, many Americans faced challenges filing their 2019 and 2020 tax returns on time. Through no fault of their own, millions of taxpayers found themselves on the hook for late filing fees because of difficulties obtaining tax documents and contacting the IRS.
Understanding this, the IRS recently announced it will automatically refund late penalties incurred by individual and business taxpayers for the 2019 and 2020 tax years.
Taxpayers don’t need to take any action to receive their penalty refunds, but some delinquent filers are running out of time to obtain relief. They face a Sept. 30 IRS deadline to submit their 2019 or 2020 returns and avoid late filing penalties.
If you paid IRS late penalties for your 2019 or 2020 taxes or haven’t yet filed those returns, here’s what you need to know about the agency’s penalty relief.
What Is the IRS Penalty Tax Relief Program?
Taxpayers who qualify for relief may soon receive refunds for the penalties they paid. The IRS is expected to return $1.25 billion to 1.6 million taxpayers, possibly by the end of September.
If you filed your 2019 or 2020 tax return late and were assessed a failure-to-file penalty, the IRS will send you a refund check for the penalties you paid.
Generally, the failure-to-file penalty is charged on returns filed after the spring due date or the fall extension deadline. The penalty is calculated as 5% of your unpaid taxes for each month or partial month your tax return is overdue. The penalty is capped at 25% of the taxes owed.
So, if you owed taxes of $10,000, your penalty payment is $500 for each month or portion of a month you were late. You won’t be charged a total penalty of more than $2,500.
While there are additional penalties that may be assessed when you file late, such as the failure-to-pay penalty, the IRS is providing relief only from its failure-to-file penalties.
Which Tax Returns Qualify for Relief?
The IRS is offering relief to both business and individual taxpayers for the 2019 and 2020 taxable years. If a taxpayer filed both returns late, they may qualify for relief for two years.
Here’s a listing of federal income tax returns the IRS says will qualify for relief if filed on or before Sept. 30.
- Form 1040, “Individual Income Tax Return”
- Form 1120, “U.S. Corporation Tax Return” (Includes related 1120 series)
- Form 1041, “U.S. Income Tax Return for Estate and Trusts”
- Form 1065, “U.S. Return of Partnership Income”
- Form 1066, “U.S. Real Estate Mortgage Investment Conduit Income Tax Return”
- Form 990-T, “Exempt Organization Business Income Tax Return”
- Form 990-PF, “Return of Private Foundation”
Some international tax returns may also qualify for penalty relief.
If you haven’t filed your return for 2019 or 2020, you should do that as soon as possible. The IRS won’t expect you to pay a failure-to-file penalty if you submit your tax return on or before Sept. 30. To make certain you meet the deadline, file electronically using one of today’s best tax software programs.
How Will Taxpayers Receive Penalty Relief Refunds?
Most taxpayers will receive their penalty refund via a paper check sent through the mail. The IRS says it will mail the check to the taxpayer’s last known address.
If your mailing address has changed since you last filed, you must update your mailing address with the IRS.
To track the status of your penalty refund payment, you need to create a free online account with the IRS. With an online account, you can bypass long telephone hold times at the agency and obtain information about your refund quickly.
What If I Filed Jointly With My Spouse but Now File Separately?
If you filed jointly with your spouse in either 2019 or 2020, but not in 2021, the IRS will send a refund check in the names of both taxpayers. The payment will be sent to the primary individual named on the tax return.
For example, let’s say John and Kelsey filed a late return jointly in 2019 and qualify for penalty relief. If John was listed as the primary taxpayer, the penalty refund check will be mailed to his current address.
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