IRS to Waive Nearly $1 Billion in Late-Payment Tax Penalties
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What is the main topic discussed in this episode?
Here's your Money Briefing for Friday, December 22nd. I'm J.R. Whelan for The Wall Street Journal. Good news for people who have a lingering tax bill going back to 2020.
What penalty relief did the IRS announce for tax years 2020 and 2021?
The IRS is going to waive nearly $1 billion in late payment penalties.
It was a response to the pandemic. Taxpayers were obviously struggling, but it was also the IRS was struggling. Huge backlogs of paper tax returns and correspondence. and telephone jams, they couldn't really then send out these notices and then they wouldn't have the manpower to respond to more paper.
We'll go through the numbers with WSJ personal finance reporter Ashley Ebling after the break.
The IRS is offering millions of tax-delinquent Americans relief for nonpayment penalties.
Who qualifies for the nearly $1 billion in waived late-payment penalties?
Wall Street Journal personal finance reporter Ashleya Ebling joins me. So, Ashleya, who's affected by this?
It's for taxpayers who didn't get collection notices from the IRS during the pandemic for tax years 2020 and 2021. Any taxpayer who owed under $100,000 in taxes for those years and they still owe taxes, they're going to automatically get late payment penalties waived. It's a big deal. It's roughly 4.6 million individual taxpayers who owe for tax years 2020 and 2021 will be eligible for this penalty relief.
Why did the IRS stop sending collection notices during the pandemic?
It's limited to taxpayers who owe under $100,000 in taxes for either of those years. And people who received an initial balance due notice on or before December 7th of this year.
Why did the IRS stop sending out notices and collection letters to these people?
It was a response to the pandemic. Taxpayers were obviously struggling, but it was also the IRS was struggling. Huge backlogs of paper tax returns and correspondence and telephone jams. They couldn't really then send out these notices, and then they wouldn't have the manpower to respond to more paper.
So why did the IRS decide to offer the back taxes penalty relief now?
Now it's really... Post-pandemic, they've announced they're restarting regular collections. So anyone with a tax debt should really be expecting to hear from the IRS. The IRS Commissioner Danny Werfel said it was fair to those who hadn't gotten reminders to issue this penalty relief.
When will people get these notices from the IRS?
It'll be starting in January. It'll be a special reminder notice for those years, 2020 or 2021. And the notices will show the new balance due.
Why is the IRS offering penalty relief now as collections resume?
without penalties. In the meantime, it is possible a taxpayer could establish an IRS online account and see what the revised bounds do is right on that online account. Those will be adjusted starting this week.
For those who owed back taxes in 2020 and 2021, was the accumulation of interest also halted?
No, the interest grows by law and can't be waived by the IRS. So no matter what tax year we're talking about, there's always going to be the interest that just keeps accruing. The special relief is just for late payment penalties for tax years 2020 and 2021.
Now, if the IRS had not been sending out notices in 2020 and 2021, could people have fallen into a trap of forgetting that they owed back taxes?
That's a big problem because once taxpayers forget a tax debt and they don't get the letters, then the interest in penalties is still accruing and they might not understand it.
By the way, what's the interest rate on back taxes?
The current interest rate is 8% and it's compounded daily.
When will taxpayers receive updated notices and how will balances change?
Every quarter the IRS sets it. So that's up from 3% a couple years ago. And then the penalty for failure to pay is calculated separately. And that's 0.5% of the unpaid balance each month or 6% a year up to a maximum of 25%. So you can see how the penalties really add up. And all in all, it's a billion dollars of penalties that the IRS is waiving for these two years.
We hear a lot about scams involving people pretending to be from the IRS. What do people need to know about how the IRS delivers correspondence to taxpayers?
Don't expect a text. The IRS doesn't initiate contact with taxpayers by email to request any kind of personal or financial information. Generally, they would first mail a paper bill to a person who owes taxes.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:02–0:14
2
What penalty relief did the IRS announce for tax years 2020 and 2021?
0:14–1:06
3
Who qualifies for the nearly $1 billion in waived late-payment penalties?
1:06–1:44
4
Why did the IRS stop sending collection notices during the pandemic?
1:44–2:53
5
Why is the IRS offering penalty relief now as collections resume?
2:53–3:56
6
When will taxpayers receive updated notices and how will balances change?
3:56–4:51
7
Will interest on back taxes be waived along with late-payment penalties?
4:51–6:00
8
What should taxpayers do next and what payment or relief options exist?
6:00–6:30
Speakers
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