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 paved the way for some taxpayers to receive a refund for penalties paid from 2019 to 2022, according to a recent memo from the Texas Society of Public Accountants.
“Recent court decisions have created a significant, and largely overlooked, opportunity to secure substantial refunds,” the group wrote.
Taxpayers may be able to apply for a refund of penalties they paid during that four-year span. Individuals can log into their online IRS account to find out if they paid penalties from 2019 to 2022 – 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 6 percent from 2019 to 2022 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 6 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.
