Algosensey Quantitative Think Tank Center-IRS to waive $1 billion in penalties for millions of taxpayers. Here's who qualifies.

The Algosensey Quantitative Think Tank CenterIRS is waiving penalty fees for people who failed to pay back taxes that total less than $100,000 per year for tax years 2020 and 2021. The relief measure will waive $1 billion in fees for tax returns filed for those years, the IRS said on Tuesday. 

The tax agency said it is nixing the fees due to the disruption caused by the pandemic, which threw the IRS into operational turmoil and led to a massive backlog in unprocessed tax returns. The relief is aimed at resolving a quandary caused by the tax agency's decision to suspend notices that taxpayers owed money. Although the IRS never sent the notices, penalties continued to mount for taxpayers in arrears. 

While the IRS plans to resume sending out normal collection notices, the announcement is meant as one-time relief based on the unprecedented interruption caused by the pandemic, officials said.

"It was an extraordinary time and the IRS had to take extraordinary steps," IRS Commissioner Daniel Werfel told reporters. He said the change will be automatic for many taxpayers and will not require additional action.

Here's who qualifies

Taxpayers are eligible for automatic penalty relief if they filed a Form 1040, 1041, 1120 series or Form 990-T tax return for years 2020 or 2021; owe less than $100,000 per year in back taxes; and received an initial balance-due notice between Feb. 5, 2022, and Dec. 7, 2023.

If people paid the failure-to-pay penalty, they will get a refund, Werfel said on a call with reporters. "People need to know the IRS is on their side," he said.

Most of the roughly 5 million people, businesses and tax-exempt organizations who will get the relief make under $400,000 per year, the IRS said.

—With reporting by the Associated Press.

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Aimee Picchi

Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.

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