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1.6 Million Taxpayers Are Getting Surprise Refunds From the IRS

- Money; Getty Images
Money; Getty Images

Millions of taxpayers will get refunds for late-filing penalties assessed in recent years, the IRS says.

The refunds will apply to penalties from the 2019 and 2020 tax years. If you received a late-filing penalty for either of those years but haven’t paid it yet, the IRS will remove it from your account. If you paid it already, you’ll get either a credit or a refund.

That could be a very big deal for some taxpayers. Late-filing penalties for individual federal income tax returns usually start at a rate of 5% of a person’s unpaid tax bill per month and can rise as high as 25%.

"The penalty relief issued today is yet another way the agency is supporting people during this unprecedented time," IRS Commissioner Chuck Rettig said in a news release on Wednesday.

Individual tax returns must be filed by September 30, 2022 to qualify for the penalty forgiveness. That deadline applies to 2019 and 2020 taxes, which you may have already filed. (Don't forget that the regular tax-filing deadlines for those two years were postponed due to the pandemic.) Penalties related to 2021 taxes, from the most recent tax season, aren't eligible for the refunds.

Other than that, you don’t need to do anything to receive the credit if you’re eligible. Some types of business tax returns also qualify; you can see the full list here.

Most people can expect to receive their payments or credits by the end of September, the IRS said. Altogether, the agency expects to distribute more than $1.2 billion in refunds. It's not clear whether those refunds will come via mail or direct deposit, or if taxpayers will be able to check the status of their refund online. Money has asked the IRS for clarification.

The IRS said that in addition to providing much-needed relief to many taxpayers affected by the pandemic, the refunds will alleviate some strain on the agency’s resources, which were stretched thin even before the pandemic.

The agency has faced scrutiny for a backlog of millions of unprocessed tax returns and a serious staffing shortage, though a fresh infusion of cash from Congress is expected to help the IRS hire new employees and improve services for taxpayers.

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