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The IRS Will Start Waiving These Penalties Automatically

For years the IRS has quietly forgiven a penalty for taxpayers with a clean record, but only if they knew to ask. That’s changing. Starting this summer, the IRS will waive certain penalties automatically for people with a history of filing and paying on time, no phone call and no form required.

What the IRS announced

On July 8, 2026, the IRS rolled out a program it calls Automatic Exemption from Penalty, or AEP. It’s systemic relief, which is the government’s way of saying the computer applies it for you. No written request, and no waiting on hold to ask for it. The IRS plans to begin this summer and phase out the old First Time Abate process as it does.

Three penalties are covered: failure to file under section 6651(a)(1), failure to pay under section 6651, and failure to deposit under section 6656. To qualify, you need a clean compliance history, meaning you filed and paid on time for the three prior years, or across twelve straight quarters if you file quarterly. That’s the same clean-record test the old First Time Abate used. The difference is you no longer have to know it exists and go ask for it. That single change is bigger than it sounds.

Why this is a real change, not a press release

The scale tells the story. In fiscal year 2025, roughly 220,000 taxpayers got First Time Abate through the old process, where you had to call or write in and request it. The Taxpayer Advocate estimates that if automatic relief had been in place, more than 1.5 million taxpayers would have qualified. That’s about seven times as many people. The relief was always there. Most of the people entitled to it simply never knew to ask, so the penalty stuck.

These penalties aren’t rounding errors. Failure to file runs 5% of the unpaid tax every month, up to 25%. Failure to pay adds 0.5% a month. Failure to deposit, the payroll one, can reach 15% fast. For a business owner who missed a payroll deposit during a cash crunch, automatic abatement of that penalty is money back in the account without a fight. Our guide on how IRS penalties work breaks down how quickly they stack.

Here’s the twist nobody puts in the headline: automatic relief can quietly work against you. This waiver resets only after another clean run of years, so it’s a one-time key. If the system spends it on a $40 late-payment penalty this year, it may not be there for a $6,000 penalty next year. When the IRS applies the relief for you, you lose the say in where it goes. That’s the case for watching your account, not just trusting the automation.

Who this helps

Business owners who missed a deposit

The failure-to-deposit penalty is the one that stings, because payroll deposits are frequent and the penalty climbs fast. If you’ve otherwise kept a clean record, AEP should catch a one-time slip automatically. We fold that into payroll compliance so a single missed deposit doesn’t turn into a running penalty you never noticed.

Anyone who filed or paid late one year

This is the classic case. You filed on time for a decade, then one year life got in the way and a return went in late or a balance sat unpaid. That’s exactly the taxpayer the relief was built for. Under the old system you had to know to ask. Now it should apply on its own, as long as the three prior years were clean.

People who already paid a penalty they could have waived

Worth a look. The manual First Time Abate hasn’t vanished yet during the transition, and you can still request abatement for open years. If you paid a failure-to-file, failure-to-pay, or failure-to-deposit penalty in the last couple of years and you had a clean record before it, that’s a refund worth chasing. It’s the kind of thing we check during tax resolution work.

The catch worth knowing

Automatic relief is generous, but it has hard edges. It abates the penalty, not the tax and not the interest. You still owe what you owed, and interest keeps running on the balance until it’s paid. It only touches those three penalties, so an accuracy-related penalty under section 6662 or anything involving fraud stays put. The clean-history test is unforgiving too. One penalty inside the lookback window can disqualify you. And it’s one relief per clean run, not a standing pass you can lean on year after year. Treat it as a break you earn by staying compliant, because that’s what it is.

What’s still open

The IRS says AEP starts this summer and replaces First Time Abate, but it hasn’t published the full mechanics yet. The open questions matter. We don’t yet know exactly how the system will pick which year to apply the relief to, whether you can decline the automatic application to save the waiver for a costlier year, or how the handoff works for penalties already assessed under the old process. Until those procedures land, the practical move hasn’t changed: if you’re carrying a penalty you’d want abated, the manual request is still on the table and still worth filing. Don’t assume the automation has your back on a penalty that’s already sitting on your account.

How The Reed Corporation works with clients on this

We watch penalties on client accounts, so when one lands and you qualify, we confirm the relief actually gets applied instead of assuming the system caught it. If a penalty predates the automatic program, we file the request for the open years. And we keep the clean-history clock in view, because a one-time waiver is only worth what you save it for. If a notice shows up first, that’s the response work we handle before the deadline runs. A little attention here turns a form letter into money that stays with you.

Related Services from The Reed Corporation

Business OwnersFor owners juggling payroll deposits and filing deadlines who can’t afford a penalty to slip through.Payroll ComplianceDeposits made on time so the failure-to-deposit penalty never starts running.Notice & Audit ResponseHelp when an IRS penalty notice lands and abatement is on the table.Individual Tax ReturnsReturns filed on time so your clean-history clock keeps the waiver available.

Helpful Guides You Might Also Like

IRS Tax Return Penalties ExplainedHow the failure-to-file, failure-to-pay, and deposit penalties actually add up.Tax ResolutionOptions when you owe a balance or a penalty and need a way through it.Filing a Tax ExtensionHow an extension protects you from the failure-to-file penalty in the first place.Reeder’s DigestOur running read on the federal and state tax news that reaches our clients.

Sources & References

IRS: Automatic Process for Eligible TaxpayersThe July 8, 2026 IRS release announcing automatic penalty relief and who qualifies.Taxpayer Advocate: A Long-Awaited Taxpayer WinThe National Taxpayer Advocate on the scale of relief and the shift from First Time Abate.IRS: First Time Abate and Administrative WaiverThe clean-compliance-history standard the automatic program is built on.IRS: PenaltiesHow the failure-to-file, failure-to-pay, and failure-to-deposit penalties are calculated.IRS: About Form 843The claim you file to request abatement of a penalty for an open year.

Frequently Asked Questions

What is the IRS’s new automatic penalty relief?

It’s a program the IRS calls Automatic Exemption from Penalty, announced July 8, 2026. Instead of making eligible taxpayers request relief, the IRS will apply it automatically for people with a clean compliance history. It covers failure to file, failure to pay, and failure to deposit penalties, and it phases out the old First Time Abate process where you had to call or file a written request. The goal is to reach the people who qualified all along but never knew to ask. The IRS expects it to begin in the summer of 2026. It’s one of the rare tax changes that helps taxpayers by default rather than requiring them to chase a benefit.

Which penalties does it cover?

Three of them. The failure-to-file penalty under section 6651(a)(1), which runs 5% of the unpaid tax per month up to 25%. The failure-to-pay penalty, which adds 0.5% a month. And the failure-to-deposit penalty under section 6656, the payroll one, which can climb to 15%. It does not cover accuracy-related penalties under section 6662, and it doesn’t touch anything involving fraud. So a late filing or a missed payroll deposit after years of compliance is squarely the kind of thing it forgives. A penalty tied to how you reported income, rather than when you filed or paid, is not eligible and stays on the account.

Do I have to do anything to get it?

Under the new program, no. That’s the whole point. If you have a clean record for the prior three years and one of the covered penalties hits, the IRS is supposed to abate it automatically, with no request from you. That said, the full procedures aren’t published yet, and the manual First Time Abate process still exists during the transition. So if you’re carrying a penalty right now that you’d want waived, don’t wait and hope the automation catches it. It’s still worth confirming the relief was applied, or filing the request yourself for an open year. Trust the system, but verify it landed on your account.

Does this wipe out the tax I owe too?

No, and this trips people up. The relief abates the penalty, not the underlying tax and not the interest. If you owed $10,000 and got hit with a late-payment penalty, the automatic relief can erase the penalty, but you still owe the $10,000 plus the interest that accrued on it. Interest keeps running until the balance is paid, and it isn’t part of what gets waived. So automatic penalty relief is real money, but it’s not a clean slate. The best move is still to pay the balance as fast as you can, because the interest clock doesn’t stop just because the penalty came off.

I already paid a penalty. Can I still get it back?

Possibly. The manual First Time Abate process hasn’t disappeared during the transition, and you can request abatement for open tax years. If you paid a failure-to-file, failure-to-pay, or failure-to-deposit penalty in the last couple of years and you had a clean record before it, you may be entitled to a refund of that penalty. It’s worth pulling your account transcript to see what was assessed and when. This is exactly the kind of thing that gets missed, because once a penalty is paid, most people assume the door is closed. Often it isn’t. Filing a Form 843 for the right year can bring that money back.

Could automatic relief ever work against me?

It can, and it’s worth understanding. The waiver is a one-time break that resets only after another clean run of years. If the system automatically spends it on a small penalty this year, it may not be available for a much larger penalty next year. When you had to request relief manually, you got to choose the year to use it on. Automatic application takes that choice away. For most people with a single small slip, this never matters. But if you’re facing penalties in more than one year, the timing of the waiver is worth watching. That’s a reason to keep an eye on your account rather than assume the automation always lands in your favor.

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