Millions of taxpayers will get a chance to skip the line as early as this summer thanks to a new automated penalty relief process being introduced by the IRS.
The IRS said its new Automatic Waiver of Penalties (AEP) will automatically provide penalty relief to eligible taxpayers for failure to file, pay or deposit employment taxes. The IRS said the AEP applies to eligible basic returns beginning in tax years 2025 and 2026 quarterly returns, as well as future tax periods.
Americans who filed or paid taxes late historically had to ask the IRS to waive the penalty. The new automated system will save Americans time and reduce the burden on the IRS to process formal requests.
National Taxpayer Advocate Erin Collins said the AEP is “a huge win for taxpayers.” “This will help millions of taxpayers, reduce unnecessary burdens and conserve IRS resources.”
Who is eligible for automatic tax penalty relief?
The IRS said Americans who have a history of 12 consecutive quarters of filing their returns on time and paying any taxes due in the past three years or filing quarterly returns are eligible for automatic relief. They don’t have to take any action to achieve this.
“Providing automatic penalty relief will eliminate unnecessary financial headaches for hundreds of thousands of taxpayers in the months to come,” said Glenn Frost, founding partner of Frost Law. “It removes a barrier that previously prevented average taxpayers unfamiliar with complex tax rules from seeking penalty relief.”
The IRS said it will enforce the AEP and issue a notice confirming that relief has been 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 the relief that is routinely granted,” IRS Chief Executive Officer Frank Bisignano said in a statement.
Which penalty can be waived under AEP?
Eligible taxpayers can receive penalty relief for the following:
- Failure to file.
- failure to pay.
- Failure to submit.
Penalties can be significant. Late filing penalties can reach up to 25% of the unpaid tax, while penalties on late payments and deposits accrue over time.
It is important to note that not all returnees are eligible for AEP. For example, information returns and returns that are filed only in response to specific transactions or rare events, such as Form 706, U.S. estate tax return or Form 709 gift tax return, generally are not eligible, the IRS said.
How many Americans will benefit?
Collins estimates that millions of Americans are eligible for penalty relief, but only 220,000 taxpayers received penalty relief in fiscal year 2025, despite the manual First Time Abbate process. If the AEP had been in place for the same period, more than 1.5 million taxpayers would have received penalty relief, nearly seven times more, he estimates. This means that many more taxpayers may have got relief without asking for it.
“For years, too many eligible taxpayers missed out on penalty relief for the first time because they didn’t know it was available, didn’t understand how to request it, couldn’t reach the IRS, or didn’t have a tax professional to advise them,” Collins said. “This is especially true for low-income taxpayers and taxpayers who cannot afford representation. A penalty that may seem minor to some taxpayers could be financially significant to a taxpayer struggling to pay rent, utilities, groceries, transportation, or medical expenses. The AEP helps fix that problem.”
Do other taxpayers also benefit?
Experts said all taxpayers, not just those who are eligible for relief, will get the benefit.
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 waiver cases, he said.
“This is the type of modernization that can improve service to taxpayers as well as free up IRS staff to assist taxpayers on issues that require direct attention,” Collins said.