IRS automated penalty relief will now be applied automatically for eligible taxpayers who file, pay, or deposit employment taxes late, starting with tax year 2025 and 2026 quarterly returns. The IRS said the Automatic Exemption from Penalty is designed to spare eligible filers from asking for relief after the fact.
IRS Chief Executive Officer Frank Bisignano said, "By automatically applying penalty relief, the IRS recognizes that taxpayers who historically pay on time should not have to make a formal request for relief that is routinely granted,"
Erin Collins on AEP
Erin Collins said, "It will help hundreds of thousands of taxpayers, reduce unnecessary burden, and conserve IRS resources." She estimated that millions of Americans qualify for penalty relief, and said, "For years, too many eligible taxpayers missed out on first-time penalty relief simply because they did not know it was available, did not understand how to request it, could not get through to the IRS, or did not have a tax professional advising them."
Collins added, "That is especially true for low-income taxpayers and taxpayers who cannot afford representation." She also said, "A penalty that may seem modest to some taxpayers can be financially significant for a taxpayer struggling to pay rent, utilities, groceries, transportation, or medical expenses."
Automatic Exemption from Penalty
The IRS said taxpayers with a history of filing returns on time and paying any tax due in the three prior years, or 12 consecutive quarters for quarterly returns, qualify for the automatic relief. Eligible taxpayers do not have to take any action, and the IRS will apply AEP and issue a notice that the relief was granted.
The agency is using the new process for original returns beginning with tax year 2025 and 2026 quarterly returns, with the same automatic treatment extending to future tax periods. Before this change, taxpayers who were late filing or paying had to ask the IRS to waive penalties, and Collins said that manual process left many eligible people out.
IRS filing limits
Not every return qualifies. The IRS said information returns are generally not eligible for AEP, and returns filed only in response to specific transactions or infrequent events are generally excluded. Form 706, U.S. Estate Tax Return, generally is not eligible, and Form 709 Gift Tax Return generally is not eligible.
Collins said about 220,000 taxpayers received penalty waivers through the manual First Time Abate process in fiscal year 2025. If AEP had been in place for that same period, more than 1.5 million taxpayers would have received relief, about seven times as many as under the manual process.
For taxpayers who qualify, the practical change is simple: the relief is handled without a request, and the notice comes after the IRS applies it. The remaining issue is straightforward too — knowing whether a specific return falls inside the automatic process or one of the exclusions before penalties reach up to 25% of unpaid tax.
