What you need to know about IRS rules: Tax deadlines and due dates.
The IRS has time limits, but waiting can narrow your relief options while increasing penalties and interest. Here’s what you need to know on tax day.
Millions of taxpayers will be able to skip the line starting this summer thanks to a new automatic penalty reduction process the IRS is rolling out.
The IRS said the new Automatic Penalty Exemption (AEP) will automatically reduce penalties for eligible taxpayers who fail to file, pay, or remit employment taxes. According to the IRS, the AEP will apply to eligible initial returns beginning with quarterly returns for tax years 2025 and 2026, and for future tax periods.
Previously, Americans who filed or paid taxes late had to ask the IRS to waive penalties. The new automated system will save Americans time and reduce the burden on the IRS in processing formal requests.
Erin Collins of the National Taxpayer Advocate said the AEP is “a huge win for taxpayers.” “It will help hundreds of thousands of taxpayers, relieve unnecessary burdens, and save IRS resources.”
Who is eligible for automatic tax relief?
According to the IRS, Americans who have a history of filing tax returns on time and paying their due taxes for the past three years, or 12 consecutive quarters if filing quarterly, are eligible for automatic relief. You don’t need to take any action to receive it.
“Providing automatic penalty relief will save hundreds of thousands of taxpayers unnecessary financial headaches in the future,” said Glenn Frost, founding partner of the Frost Law. “This removes a hurdle that has prevented average taxpayers unfamiliar with the complexities of tax law from seeking penalty relief.”
The IRS said it will apply the AEP and issue a notice confirming that relief has been granted.
“By automatically applying penalty reductions, the IRS recognizes that taxpayers who have historically paid their taxes on time do not need to formally apply for the relief that is routinely granted,” IRS CEO Frank Bisignano said in a statement.
Which penalties can be waived under the AEP?
Eligible taxpayers may receive penalty relief if:
- Submission failure.
- Failure to pay.
- Failed deposit.
The penalties can be significant. Late filing penalties can reach up to 25% of unpaid taxes, and late payment or deposit penalties accrue over time.
It is important to note that not all returns are eligible for AEP. For example, the IRS says that information returns and returns filed only in response to specific transactions or rare events, such as Form 706, U.S. Estate Tax Return, or Form 709 Gift Tax Return, are generally not covered.
How many Americans will benefit?
Collins estimates that while millions of Americans are eligible for penalty relief, only about 220,000 taxpayers will receive penalty relief through the manual initial abatement process in fiscal year 2025. If the AEP had been in place during the same period, more than 1.5 million taxpayers would have received reduced penalties — about seven times as many, he estimates. That means more taxpayers could have received relief without having to request it.
“For years, too many eligible taxpayers have missed out on initial penalty relief simply because they didn’t know it was available, didn’t understand how to apply, couldn’t contact the IRS, or didn’t have a tax professional to advise them,” Collins said. “This is especially true for low-income taxpayers and taxpayers who cannot afford to be represented. What may be a modest penalty for some taxpayers can have significant financial implications for taxpayers who are struggling to pay for rent, utilities, groceries, transportation, and health care. AEP helps solve that problem.”
Will other taxpayers benefit too?
Experts say all taxpayers will benefit, not just those eligible to seek relief.
He said the IRS would also receive fewer phone calls, fewer written requests, and fewer cases of manual penalty reductions because eligible taxpayers would no longer have to contact the IRS for relief.
“This is the type of modernization that can improve taxpayer services while also allowing IRS employees to assist taxpayers with issues that require direct attention,” Collins said.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday..
