What Is The IRS’s First-Time Penalty Abatement? – Forbes Advisor – Technologist

If the IRS has assessed a tax penalty on your account for the first time, don’t panic. You may qualify for a relief measure known as a first-time penalty abatement.

Who Qualifies for the First-Time Penalty Abatement?

This penalty abatement waives certain penalties for one tax period. To be eligible, however, you must have a history of good tax compliance.

The IRS considers you compliant if you’ve filed returns for the past three years with no penalty.

For example, let’s say you received an IRS failure-to-pay penalty on your 2023 tax return. For tax years 2022, 2021 and 2020, however, you filed and paid properly and did not request the first-time penalty abatement.

In that case, you could qualify for a penalty abatement on your 2023 taxes.

What Penalties Can Be Waived With This Abatement?

Generally, the IRS allows a first-time penalty abatement for three types of penalties: failure to file, failure to pay and failure to deposit.

Failure-To-File Penalty

The failure-to-file penalty is applied when you don’t file your tax return by the due date. It may be charged to an individual, S corporation or partnership tax return.

For individuals, the penalty amount is generally a percentage of the taxes you owe. The penalty can’t exceed 25% of your unpaid tax, but interest will accrue on it.

For partnership or S corporation tax returns, the IRS determines the penalty based on the number of shareholders or partners who were on record at any time during the tax year.

For the 2023 tax year, the IRS charges S corporations and partnerships a late filing penalty of $220 for each shareholder or partner. The penalty is assessed for each full or partial month of lateness; it maxes out at 12 months.

Failure-To-Pay Penalty

You may also qualify if the IRS penalizes you for paying your taxes late.

The agency imposes a failure-to-pay penalty when you haven’t paid the tax amount reported on your return by the due date—or when you fail to report the correct tax and leave some or all of it unpaid. The penalty is assessed as a percentage of the unpaid taxes, but it won’t exceed 25% of the amount owed. Interest will apply to the penalty amount.

However, if the IRS charges you both penalties for the same month, the  failure-to-file penalty will be reduced. The reduction is equal to the amount of that month’s failure-to-pay penalty.

Failure-To-Deposit Penalty

The IRS provides first-time penalty relief for the failure-to-deposit penalty as well.

Employers must send employment tax deposits monthly or semi-weekly, depending on their tax deposits. The IRS will penalize an employer who fails to make tax deposits on time for:

• Federal income tax withholding
• Social Security
• Medicare
• Unemployment tax

The agency also charges this penalty if the employer fails to deposit the correct amount or deposits it in the wrong way. The amount of the penalty varies; it’s based on the percentage of the taxes that were deposited improperly.

How To Request a First-Time Penalty Abatement

You can request the IRS’s first-time penalty abatement in two ways: by phone or by mail.

To call the IRS, use the toll-free phone number provided on your notice or letter. You won’t need any additional documentation. An IRS representative will review your account to see if you qualify for relief.

To make the request by mail, you can send a written statement or a completed version of Form 843, Claim for Refund and Request for Abatement. Mail it to the address listed on your notice or letter.

What If I Haven’t Paid All My Taxes Yet?

You may qualify for the first-time penalty abatement even if you haven’t paid off the full tax balance.

For example, if you didn’t pay your taxes in 2023 and you receive a notice of failure-to-pay penalty charges, you can request the first-time abatement. The IRS may remove the penalty up to the date of your request, but after  that the penalty will continue to accrue because the tax is not fully paid yet.

If you later pay the 2023 tax in full, you can contact the IRS again and request relief under first-time penalty abatement for the same tax period and penalty.

Other Types of Penalty Relief

Remember that if you don’t qualify for the first-time penalty abatement, you may be eligible for other types of penalty relief offered by the IRS. People living in federal disaster areas who are late to file or pay will typically have their penalties waived.

If none of those will work for you, you may want to ask the IRS about an installment payment plan.