IRS Issuing $1.2 Billion in Penalty Refunds to 1.2 Million American Taxpayers

The Internal Revenue Service is sending refunds to more than a million Americans who filed their taxes late in the early days of the COVID-19 pandemic.

Typically, taxpayers who file returns late without an extension can expect to pay penalties of up to 25% of the amount of tax they owe. For 2019 and 2020, however, the agency is suspending penalties for people who filed late. Taxpayers who already paid a fine will automatically receive refunds, the IRS said on Wednesday.

More than 1.6 million taxpayers are set to receive refunds or credits totaling $1.2 billion — an average of $750 per person, although some may get more and some less. To qualify for late-penalty forgiveness, individual tax returns must be filed by September 30, 2022.

#IRS provides automatic penalty relief for certain 2019 and 2020 tax returns to help Americans affected by the #COVID19 pandemic: https://t.co/D79DkZ4dSQ pic.twitter.com/OrMAUXn002

— IRSnews (@IRSnews) August 24, 2022

Taxpayers don’t need to do anything, the IRS said. People who have been fined but not yet paid the penalty will see it erased, while those who already paid a penalty will get a refund or a credit. Most of the refunds will be delivered by the end of September, according to the agency.

The effort is a move to “help struggling taxpayers affected by the COVID-19 pandemic,” according to the IRS. The plan could also help the agency, which is itself struggling to dig out from a massive backlog of unprocessed tax returns.

The pandemic has had an “unprecedented” effect on the tax agency, the IRS said in a notice, highlighting the agency’s role in distributing federal stimulus payments and taking other steps to help taxpayers weather the pandemic.

Dropping late-filing penalties could also benefit the IRS by helping the agency focus on whittling down its backlog of tax paperwork and returning to normal for the 2023 tax season.

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