Taxes are an unavoidable fact of life, but the IRS is surprisingly flexible when it comes to some debts.
If you owe a fee for filing your taxes late or for paying them late, you can request a one-time penalty abatement. In other words, if you tried to comply with your tax requirements, but couldn’t pay them, you can ask the IRS to forgive the penalty fee that would normally be applied.
If your request is granted, you’ll avoid a penalty that can increase your tax debt by 25% or more.
Some abatement requests will inevitably be denied, but you’re likely to be successful if you have a specific type of late penalty, and you can show a reasonable cause for your overdue payment.
Types of Penalties Eligible for Abatement
The IRS only forgives certain late fees under certain circumstances. If you’ve accrued a fee for one of the following three reasons, you might be eligible for what the IRS calls “First Time Abate.” Remember that not all penalties are eligible for abatement. Eligibility sometimes depends on the reason for failure and a taxpayer’s history of paying or not paying.
Failure to File
The Failure to File penalty is a fee you incur if you don’t file your tax return by the due date. The fee is calculated as 5% of your unpaid taxes each month for up to five months or up to 25% of your unpaid tax bill. On top of the fee, you will also have to pay interest.
If you submit a form showing reasonable cause for your late filing, you may be able to get this fee dismissed without requesting abatement. Reasonable cause varies case-by-case, but can include:
- Fires, natural disasters or civil disturbances
- Inability to get records
- Death or serious illness of the taxpayer or immediate family
- A delay in electronic filing or payment
Failure to Pay
If you filed your taxes but did not pay on time, or you paid on time but didn’t report all of your taxable income, you’ll receive the Failure to Pay penalty. This penalty is initially equal to 0.5% of the unpaid amount each month, up to 25% of your unpaid tax bill, but it increases to 1% a month on the 10th day after you receive the notice from the IRS. The IRS also charges interest on the unpaid balance.
You can reduce the Failure to Pay fee by going on an approved payment plan. Like the Failure to File fee, you can also get the fee removed if you’re able to demonstrate reasonable cause for your late payment.
Failure to Deposit
If an employer fails to pay their employment taxes, including Social Security and income tax, they’ll face a Failure to Deposit penalty. This fee applies to any employers who either doesn’t make employment tax deposits on time, doesn’t make the deposits properly or fails to pay the right amount.
The fee can range from 2% to 15% of the unpaid deposit, plus interest, depending on how late you are. If you can demonstrate a reasonable cause for the failure, you may be able to get the fee dismissed without filing an abatement request.
Qualifying for a Penalty Abatement with the IRS
You don’t necessarily need a reason for a penalty abatement request, but your history with the IRS matters. If you have a record of compliance, you have a shot at making a successful First Time Abate request. Here’s how you qualify:
- If required, you filed the same type of return for 3 tax years before the year of your penalty.
- You either didn’t receive any penalties during the prior 3 years, or the penalty was removed for a reason other than First Time Abate.
- You have less than four Failure to Deposit penalty waiver codes over the prior three years.
- You are not being charged the Failure To Deposit penalty for avoiding the Electronic Federal Tax Payment System (EFTPS).
Procedure to Apply for IRS Penalty Abatement
You can apply for penalty abatement by calling the phone number at the top right corner of your notice or by submitting Form 843, Claim for Refund and Request for Abatement online. A few things to note:
- You may be able to qualify for abatement over the phone, without providing any supporting information or documents.
- If you submit a form to apply, you can include a written statement and attach supporting evidence.
- If your request is denied, the IRS will also consider whether you qualify for Reasonable Cause relief.
- If your request is denied, you can appeal the decision.
What To Do for Successful Penalty Abatement
Save yourself time applying for fee abatement by starting with a simple phone call to the IRS.
An agent can review your account information while you’re on the phone and see if you meet the requirements for First Time Abate or other relief, which makes calling much faster and more convenient than sending in a full application.
Just be prepared to discuss the details before you pick up the phone. Make sure you have your notice in hand, you understand the eligibility criteria for a First Time Abate and you’re prepared to explain why you were unable to file or pay as required.
Finally, make sure you act as soon as you’re aware of the issue. By doing so, you’re more likely to avoid steep penalties so you’ll have less damage to undo down the road.
What Not To Do When Seeking Penalty Abatement
If you receive a notice from the IRS, don’t avoid responding. The longer you wait, the more likely you are to miss deadlines and the bigger your overdue bill will be.
When you respond, don’t breeze over the details. It may take some time to review your records to find relevant documentation, but you’re more likely to be successful if you support your explanation.
Be sure to read your notice thoroughly since it will contain details on how to properly respond and file your request. As you’ll note, you don’t need to hire a third-party to handle the issue on your behalf. If you’re looking for guidance, you can reach out to the IRS directly, or contact one of their Taxpayer Advocates, for information on how to proceed.
About The Author
Sarah Brady is a Personal Finance Writer and educator who's been helping people improve their financial wellness since 2013. Sarah writes for Experian, Investopedia and more, and she's been syndicated by Yahoo! News and MSN. She is a workshop facilitator and former consultant for the City of San Francisco's Affordable Home Buyer Programs, as well as a former Certified Housing & Credit Counselor (HUD, NFCC). Sarah can be contacted via sarahcbrady.com.
- N.A. (2023, November 14) Failure to File Penalty. Retrieved from https://www.irs.gov/payments/failure-to-file-penalty
- N.A. (2023, November 08) Failure to Pay Penalty. Retrieved from https://www.irs.gov/payments/failure-to-pay-penalty
- N.A. (2023, May 16) Failure to Deposit Penalty. Retrieved from https://www.irs.gov/payments/failure-to-deposit-penalty
- N.A. (2023, May 23) Penalty Relief due to First Time Abate or Other Administrative Waiver. Retrieved from https://www.irs.gov/payments/penalty-relief-due-to-first-time-abate-or-other-administrative-waiver