Refunds for Mistakenly Omitted Taxpayers

The IRS is set to refund over 2,100 taxpayers who were mistakenly excluded from a relief program established during the pandemic.

According to a report by the Treasury Inspector General for Tax Administration (TIGTA), 2,138 taxpayers, representing 2,248 tax accounts, should have received relief from penalties for unpaid taxes for the tax years 2020 and 2021. The total amount owed to these taxpayers is approximately $463,000, with an average refund of $206 per account, depending on individual circumstances.

Details of the Relief Program

The IRS's temporary failure-to-pay waiver program provided penalty relief to nearly 5 million individuals, businesses, trusts, estates, and tax-exempt organizations.

By December 2023, these entities collectively received about $1 billion in penalty relief. The relief period began on February 5, 2022, or on the date the IRS issued an initial balance-due notice, whichever was later. This relief program will continue until March 31, 2024.

Understanding Tax Penalties

Tax penalties can accumulate quickly. The IRS typically charges a failure-to-pay penalty of 0.5% of unpaid taxes for each month or partial month, reaching a maximum of 25%. Additionally, interest accrues daily based on the federal funds rate plus three percentage points.

There is also a failure-to-file penalty of 5% of the unpaid tax amount for each month a tax return is late, which can also reach 25%.

Challenges in the Upcoming Tax Season

As the 2026 tax-filing season approaches, taxpayers should prepare for potential challenges. The IRS expects about 164 million individual tax returns to be filed by the April 15 deadline.

However, operational changes at the U.S. Postal Service may lead to delays in processing mailed returns. Taxpayers are advised to mail their returns well in advance of the deadline to avoid penalties, as the IRS will only consider returns postmarked by April 15 as filed on time.

Next Steps for Taxpayers

Given the challenges this tax season, taxpayers should remain proactive. The IRS is currently experiencing a 27% workforce reduction, which could impact assistance available to those facing issues. National Taxpayer Advocate Erin Collins noted that the success of the filing season will depend on how well the IRS can support millions of taxpayers with problems.

Taxpayers are encouraged to file their returns even if they cannot pay, as the IRS offers various resolutions to assist those in need.