There might be a check coming in the mail if you were late filing a 2019 or 2020 federal return. In a one-time offer, the IRS is refunding $1.2 billion in late filing penalties for those tax years.
The average refund in failure-to-file penalties will be about $750, according to the IRS.
If you filed your return late and are therefore eligible for a refund of the penalty, there’s nothing you have to do. The IRS began sending out the payments automatically. The agency said close to 1.6 million taxpayers should receive refunds or credits.
“So it’s certainly possible that a given taxpayer will get two refunds if they filed both a 2019 and 2020 return late,” IRS spokesman Eric Smith said.
Taxpayers normally pay a penalty of 5 percent per month, up to 25 percent of the unpaid tax, when a federal return is late.
But many individuals and businesses may have missed the filing deadline for 2019 and 2020 because of pandemic-related issues. Businesses were closed, delaying taxpayers from getting the information they may have needed to file. People may have been too sick to be concerned about filing their returns. Many paid and free tax preparation services were curtailed.
“At the same time, the IRS was virtually unreachable by phone, while a backlog of unprocessed paper returns and correspondence that started in 2020 continued to grow,” National Taxpayer Advocate Erin M. Collins said in a blog post. “Many taxpayers, through no fault of their own, and sometimes even when they timely filed, were subject to late-filing penalties.”
The penalty forgiveness can be significant, Collins said. Let’s say you owe the IRS $10,000. File late, and the penalty is $500 per month, up to a maximum of $2,500.
If you still haven’t filed returns for 2019 and/or 2020, you’ll have to move fast. This penalty forgiveness is a one-time offer. You only have until Sept. 30 to get your returns e-filed — or mailed. However, I highly recommend you file electronically. The IRS is still working through a massive backlog of returns it received this year — 8.2 million as of Aug. 26.
Most eligible taxpayers should receive their refunds by the end of September. But Collins is warning that the sheer number of checks to be issued means that some refunds may take longer.
Other penalties, such as for the failure to pay, are not eligible under the program. If you think you have a good reason for not filing on time or paying late for other tax years, the IRS has other relief programs. You can find details at irs.gov/penaltyrelief.
Considering all the glitches the IRS has faced since the start of the pandemic, there’s a high possibility sending out $1.2 billion in refunds won’t go as planned.
“Given the large scale of the program, it would be unreasonable to expect that the IRS will not encounter unanticipated speed bumps down the road,” Collins said.
So, here’s some guidance from the taxpayer advocate’s office.
— Look for a notice. The IRS will mail the same notices it normally sends when it issues a refund or applies a refund to a taxpayer’s account. Unfortunately, the notices won’t explain that you’re getting money back as part of this relief program, Collins said. Nonetheless, you will see that the failure-to-file penalty was either eliminated or used to offset the money you may still owe the IRS.
— Make sure the IRS has your current address. The IRS notice and any refund check will be mailed to your last known address. Now, here’s where you will need to pack your patience. Calling may not help with this. There are still delays in reaching live support at the IRS. You can notify the post office that services your old address you’ve moved, but not all post offices forward government checks. So you’ll also need to let the IRS know your address has changed.
You can use Form 8822 to notify the agency of a change to your home mailing address. Typically, it takes four to six weeks to process a change of address. But these aren’t typical times.
— Separated or divorced joint filers may have some issues. For joint returns filed in 2019 and/or 2020, refund checks will be issued in the names of both taxpayers but will be mailed to the current address of the individual whose name and Social Security number are listed first on the return, Collins said. One does not have to imagine how this might go sideways if the check is sent to just one spouse when they both are entitled to the refund.
— Check your IRS online account. This would be a good time to establish an IRS online account to check to see if you’re getting a penalty rebate. Go to irs.gov and click the link for “Sign in to your Online Account.” By the way, you can’t use the online account to update your address.
Collins says if you don’t see your refund or have an issue, wait until after Nov. 30 before contacting the IRS for assistance at (800) 829-1040. Because the agency is still catching up with unprocessed returns, employees may need time to process the penalty refunds.
The money coming back to folks could be a welcome financial relief with consumer prices still high and interest rates slated to go up as the Federal Reserve continues its effort to lower the U.S. inflation rate.
Michelle Singletary on inflation and personal finance
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