Millions of taxpayers will get to skip the line beginning this summer, thanks to a new automated penalty relief process the IRS is rolling out.
The IRS said its new Automatic Exemption from Penalty (AEP) will automatically provide penalty relief for failure to file, pay or deposit employment taxes to eligible taxpayers. AEP applies to eligible original returns beginning with tax year 2025 and 2026 quarterly returns, as well as future tax periods, the IRS said.
Americans who were late filing or paying taxes historically have had to ask the IRS to waive the fines. The new automated system will save Americans time and reduce the IRS’ burden of processing the formal requests.
AEP “is a major taxpayer win,” said Erin Collins, the National Taxpayer Advocate. “It will help hundreds of thousands of taxpayers, reduce unnecessary burden, and conserve IRS resources.”
Who Qualifies for Automatic Tax Penalty Relief?
Americans who have a history of filing their returns on time and paying any tax due in the three prior years, or 12 consecutive quarters for quarterly returns, are eligible for automatic relief, the IRS said. They won’t have to take any action to receive it.
“Providing automatic penalty relief will end unneeded financial headaches for hundreds of thousands of taxpayers in the months ahead,” said Glen Frost, founding partner of Frost Law. “This removes a hurdle that prevented average taxpayers unfamiliar with complex tax rules for asking for penalty relief.”
The IRS said it will apply AEP and issue a notice confirming that the relief was granted.
“By automatically applying penalty relief, the IRS recognizes that taxpayers who historically pay on time should not have to make a formal request for relief that is routinely granted,” said IRS Chief Executive Officer Frank Bisignano in a statement.
Which Penalties Can Be Waived Under AEP?
Qualified taxpayers can receive penalty relief for:
- Failure to file.
- Failure to pay.
- Failure to deposit.
Penalties can be significant. Late filing penalties can reach up to 25% of unpaid tax, while late payment and deposit penalties accrue over time.
It’s important to note not all returns are eligible for AEP. For example, information returns and returns that are filed only in response to specific transactions or infrequent events, such as Form 706, U.S. Estate Tax Return or Form 709 Gift Tax Return, generally aren’t eligible, the IRS said.
How Many Americans Will Benefit?
Collins estimates millions of Americans qualify for penalty relief, but only about 220,000 taxpayers received penalty waivers though the manual First Time Abate process in fiscal year 2025. If AEP had been in place for the same period, more than 1.5 million taxpayers would have received penalty relief, about seven times as many, she estimated. That means many more taxpayers would have received relief without having to ask for it.
“For years, too many eligible taxpayers missed out on first-time penalty relief simply because they did not know it was available, did not understand how to request it, could not get through to the IRS, or did not have a tax professional advising them,” Collins said. “That is especially true for low-income taxpayers and taxpayers who cannot afford representation. A penalty that may seem modest to some taxpayers can be financially significant for a taxpayer struggling to pay rent, utilities, groceries, transportation, or medical expenses. AEP helps fix that problem.”
Do Other Taxpayers Benefit, Too?
All taxpayers, not just those who are eligible seeking relief, benefit, experts said.
Since eligible taxpayers will no longer have to contact the IRS for their relief, the IRS will receive fewer phone calls, fewer written requests and fewer manual penalty abatement cases, she said.
“This is the kind of modernization that can improve taxpayer service while freeing IRS employees to assist taxpayers with issues that require direct attention,” Collins said.
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