Taxpayers may be eligible for refunds for penalties and fees they paid the Internal Revenue Service during the Covid pandemic.
Two recent court cases have potentially paved the way for some taxpayers to receive a refund for penalties paid from January 10, 2020 to July 10, 2023, according to a recent memo from the Texas Society of Public Accountants.
Those who want to take advantage of the potential refund need to file a request by July 10 and should expect the process to go slowly as the most recent court decision faces an arduous appeal journey, said tax attorney Alyssa Maloof Whatley, co-founder of tax debt resolution law firm EasAly AI.
“Filing a claim before the July 10, 2026 deadline is essential regardless of how the appeal resolves,” Whatley said. “Taxpayers should go in understanding the IRS may deny the claim outright pending appellate review. That denial is not necessarily the end of the road, but it does require action.”
Taxpayers may be able to apply for a refund of penalties they paid from January 10, 2020 to July 10, 2023. Individuals can log into their online IRS account to find out if they paid penalties during that four-year span - or consult a tax professional to confirm eligible payments.
Taxpayers could recoup hundreds, if not thousands, of dollars in penalties related to certain business and personal tax situations.
Those situations include underpayment of estimated taxes, late payment of taxes owed, late filing and refunds that took longer than 45 days after certain filing-related dates, according to the society.
Penalty rates vary depending on the situation:
- Underpayments: Ranged from 3 percent to 8 percent from January 10, 2020 to July 10, 2023 of taxes owed
- Late payment of taxes owed: 0.5 percent of the owed balance per month
- Late filing: 5 percent of the amount owed
- Late payment and filing: Penalty capped at 5 percent of the amount owed, according to the IRS
- Late refund of overpayment: 3 percent to 8 percent, depending on the tax year.
A taxpayer who owed $5,000, and filed and paid three months late, would pay a 5 percent penalty totaling $750 over three months. A $10,000 balance would cost the taxpayer $1,500.
Other penalties that could be eligible for refund are those paid in installment agreements, according to Cincinnati-based law firm Taft Stettinius & Hollister LLP.
Installment agreements are federal payment plans for taxpayers who owe $50,000 or less, according to the IRS.
Taxpayers can file IRS Form 843 to recoup the penalties and interest. Alternatively, an individual can hire a tax professional to file the form on their behalf.
