IRS Makes It Easier to Skip Late Tax Fees: Automatic Penalty Relief Explained

Updated July 10, 2026, 2:42 p.m. ET

Imagine you usually return your library books on time, but one day you slip up. Normally, you’d have to go to the desk and beg them to cancel the late fee. Starting this summer, the IRS (the U.S. tax agency) is like a helpful librarian who just waves the fee automatically for good customers.

Millions of taxpayers will get to skip the line beginning this summer, thanks to a new automated penalty relief process the IRS is rolling out. (There’s also a video about IRS tax debt deadlines and a fun gallery of celebrities like Teresa Giudice, Nicholas Cage, and Marc Anthony who once ran into IRS trouble.)

What Is the New Automatic Exemption from Penalty (AEP)?

The IRS said its new Automatic Exemption from Penalty (AEP) will automatically provide penalty relief for failure to file, pay, or deposit employment taxes (these are taxes that employers handle for their workers) to eligible taxpayers.

• AEP applies to eligible original returns beginning with tax year 2025 and 2026 quarterly returns (tax papers due every three months), as well as future tax periods.
• Historically, Americans who were late filing or paying taxes had to ask the IRS to waive the fines. The new automated system will save Americans time and reduce the IRS’ burden of processing those formal requests.

Important: Erin Collins, the National Taxpayer Advocate (a person who protects taxpayer rights), said AEP “is a major taxpayer win.” She explained it “will help hundreds of thousands of taxpayers, reduce unnecessary burden, and conserve IRS resources.”

Who Qualifies for Automatic Tax Penalty Relief?

Think of it like a gold star for good behavior. Americans who have a history of filing their returns on time and paying any tax due in the three prior years (or 12 consecutive quarters for quarterly returns) are eligible for automatic relief.

• They won’t have to take any action to receive it. The IRS does the work.
• Glen Frost, founding partner of Frost Law, said providing automatic penalty relief will end unneeded financial headaches for hundreds of thousands of taxpayers. He noted it “removes a hurdle that prevented average taxpayers unfamiliar with complex tax rules for asking for penalty relief.”

The IRS said it will apply AEP and issue a notice confirming that the relief was granted.

Important: IRS Chief Executive Officer Frank Bisignano said in a statement: “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.”

Which Penalties Can Be Waived Under AEP?

Qualified taxpayers can receive penalty relief for these oopsies:

• Failure to file – you didn’t send in your tax form on time.
• Failure to pay – you didn’t pay the money you owed on time.
• Failure to deposit – for employment taxes, you didn’t put the money where it needed to be on time.

Penalties can be significant. Late filing penalties can reach up to 25% of unpaid tax, while late payment and deposit penalties accrue (grow) over time.

Note: Not all returns are eligible. For example, information returns and returns filed only for specific transactions or infrequent events—such as Form 706 (U.S. Estate Tax Return) or Form 709 (Gift Tax Return)—generally aren’t eligible.

How Many Americans Will Benefit?

Let’s look at the numbers in a simple way:

• Collins estimates millions of Americans qualify for penalty relief.
• In fiscal year 2025, only about 220,000 taxpayers received penalty waivers through the old manual “First Time Abate” process (where they had to ask).
• If AEP had been in place for the same period, more than 1.5 million taxpayers would have received relief – about seven times as many!

Important: Collins said for years, too many eligible taxpayers missed out because they didn’t know it was available, didn’t understand how to request it, couldn’t get through to the IRS, or didn’t have a tax pro. This is especially true for low‑income taxpayers. A penalty that seems small to some can be huge for someone struggling to pay rent or food. AEP helps fix that problem.

Do Other Taxpayers Benefit, Too?

Yes! All taxpayers, not just those getting relief, benefit:

• Since eligible taxpayers no longer contact the IRS for relief, the IRS will receive fewer phone calls, fewer written requests, and fewer manual cases.
• Collins said, “This is the kind of modernization that can improve taxpayer service while freeing IRS employees to assist taxpayers with issues that require direct attention.”

How Does the Automatic Relief Happen? (Step‑by‑Step)

1. The IRS computer looks at your past record (were you on time for the last 3 years or 12 quarters?).
2. If you’re eligible, the system automatically applies the penalty relief to your account.
3. The IRS sends you a notice (like a letter) confirming the relief was granted.
4. You simply relax—no forms, no phone calls needed.

Summary

Starting in summer 2026 (covering tax year 2025 and 2026 quarterly returns), the IRS will use a new automatic system called AEP. If you have been timely with taxes for the prior three years (or 12 quarters), any fines for late filing, paying, or depositing employment taxes will be wiped away automatically. This will help over a million people—especially those who previously couldn’t navigate the old request system—and it lightens the IRS workload so they can help with harder problems. Just remember: some special forms like estate or gift tax returns don’t qualify.

FAQ

Q1: What is AEP, and who runs it?
A: AEP stands for Automatic Exemption from Penalty. It’s a new IRS program that automatically cancels certain late tax fees for people with a good past record.

Q2: Do I need to fill out any paperwork to get this relief?
A: No! If you qualify (on‑time filing and payment for the past 3 years or 12 quarters), the IRS does it for you and mails a confirmation.

Q3: Which late fees are covered?
A: The fees for not filing, not paying, and not depositing employment taxes. But rare forms like estate or gift tax returns are not covered.

Q4: How big could the savings be?
A: Late filing penalties can be as high as 25% of the tax you didn’t pay, plus other growing penalties—so it can be a lot of money.

Q5: Why is this good for everyone, not just late filers?
A: Fewer people asking for waivers means the IRS has more time to help folks with complicated tax issues.

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to their free Daily Money newsletter for personal finance tips and business news every Monday through Friday.