Millions of taxpayers who paid late-payment penalties on their 2020 or 2021 federal returns may be entitled to refunds of hundreds or even thousands of dollars. The catch: the window to claim that money is closing fast. For many filers, the statutory deadline falls in July or August 2025, which means as of late May 2025, roughly 68 days remain to get a claim postmarked before the IRS is legally barred from sending a check.
The refunds trace back to a problem the IRS created. During the pandemic, the agency fell months behind on processing returns and mailing balance-due notices. Taxpayers who owed money on their 2020 or 2021 returns received penalty charges far later than normal, and in many cases, the delay was entirely the government’s fault. In December 2023, the IRS acknowledged the scope of the problem and announced broad penalty relief through IR-2023-244, building on the framework it had established earlier in Notice 2023-21. The agency wiped failure-to-pay penalties from affected accounts and, for many taxpayers, issued automatic refunds.
But “automatic” did not mean “universal.” Taxpayers who had already paid their penalties in full before the relief took effect were not always included in the automatic refund process. For them, the only path to recovery is filing a formal claim, and the clock is almost out.
Who qualifies for the penalty refund
The relief targets one specific charge: the failure-to-pay penalty under Internal Revenue Code Section 6651(a)(2) and (a)(3). It does not cover late-filing penalties, accuracy-related penalties, or fraud penalties.
To qualify, a taxpayer must meet all of these conditions:
- Return type: The return is an individual (Form 1040 series), business, or certain other federal return for tax year 2020 or 2021.
- Tax threshold: The assessed tax on the return is under $100,000 for the relevant tax period. That threshold applies to the tax itself, not the total balance after penalties and interest are added.
- Delayed notice: The taxpayer received an initial balance-due notice during the window affected by pandemic-era processing delays, generally between February 2022 and December 2023.
“A lot of people assume the IRS took care of this for everyone, but that is not what happened,” said Mark Steber, chief tax information officer at Jackson Hewitt, in a statement about the relief program. Taxpayers who paid penalties before the IRS applied automatic adjustments may have fallen through the cracks.
For filers who still carried unpaid balances when the relief rolled out, the IRS reduced or zeroed out penalty charges automatically. For those who had already paid, the agency did not necessarily issue a refund without a formal request.
Why the deadline is a hard cutoff
The refund clock is set by Internal Revenue Code Section 6511, which generally gives taxpayers three years from the date of payment to claim a refund. The IRS’s own Internal Revenue Manual (Part 25.6.1) confirms that penalty payments count as tax payments for purposes of this lookback period.
Here is what that means in practice: if you paid a failure-to-pay penalty on your 2020 return in July 2022, your three-year window closes in July 2025. If you paid in August 2022, you have until August 2025. Once your personal deadline passes, the IRS cannot issue a refund, period, even if your eligibility is beyond dispute.
The “68 days” figure reflects how tight the timeline has become for taxpayers whose penalty payments landed in mid-to-late 2022. For some filers, the deadline may have already passed. For others, it is only weeks away. The only way to pin down your specific cutoff is to check when you actually made the payment.
How to file your claim, step by step
The IRS designates Form 843 (Claim for Refund and Request for Abatement) as the vehicle for requesting a penalty refund. The process is straightforward for a single penalty on a single return, though taxpayers with complicated account histories may want to consult a tax professional.
Step 1: Pull your account transcript. Log in to your IRS Online Account and request a Record of Account transcript for tax years 2020 and 2021. Look for transaction codes showing failure-to-pay penalty assessments (typically Transaction Code 166) and any payments applied toward those penalties. If the IRS already applied automatic relief, you will see a credit or adjustment offsetting the original charge. If you do not see that adjustment and you paid the penalty, you likely need to file.
Step 2: Complete Form 843. Enter your identifying information, the tax year, and the type of penalty (failure-to-pay under IRC Section 6651). In the explanation section, state that you are requesting a refund of failure-to-pay penalties under the IRS’s pandemic-era penalty relief program established by Notice 2023-21. Include the exact date(s) you paid the penalty and the dollar amount(s).
Step 3: Attach supporting documents. Include a copy of any IRS notice showing the original penalty assessment and proof of payment. A copy of your account transcript showing the relevant transactions helps the IRS locate your account and verify eligibility faster.
Step 4: Mail it with tracking. Send the completed form to the IRS service center that handles your area (the Form 843 instructions list the correct address by state). Use certified mail with a return receipt or another trackable shipping method so you have proof the claim was postmarked before your statute-of-limitations deadline. Keep copies of everything you send.
One important note: if the IRS abates the penalty, any interest the agency charged on top of that penalty should also be removed. Under IRC Section 6404(e), interest attributable to an abated penalty is adjusted automatically, so you do not need to file a separate request for the interest portion.
What a typical refund looks like
The failure-to-pay penalty accrues at 0.5% of the unpaid tax per month (or partial month), up to a maximum of 25% of the tax owed. The numbers add up quickly:
- A taxpayer who owed $5,000 in tax on a 2020 return and went 12 months before paying would face a penalty of roughly $300, plus interest.
- A taxpayer who owed $50,000 and took 18 months to pay could see a penalty exceeding $4,500, plus interest.
- A taxpayer right at the $99,999 threshold with 24 months of accrual could be looking at a penalty above $12,000.
The exact refund depends on the size of the original tax balance, how long the penalty accrued, and whether any partial relief was already applied. Taxpayers with larger balances or longer payment timelines stand to recover the most.
Common situations the IRS has not addressed
The IRS has not published an official count of how many taxpayers remain eligible for refunds under this relief, nor has the agency released a total dollar figure for recoverable penalties. Several practical questions also remain unanswered:
- Installment agreements: Taxpayers who were on IRS payment plans when the relief was announced may have had penalties partially abated but not fully refunded. If you were making monthly payments that included penalty charges, check your transcript carefully to see whether the full penalty amount was credited back.
- Third-party payments: If a tax professional or authorized representative paid the penalty on your behalf, the refund claim still needs to be filed by the taxpayer (or by the representative with a valid Power of Attorney on file).
- Processing time: The IRS has not disclosed how long Form 843 claims tied to this relief program are taking to process. Broader processing backlogs have improved since 2023, but no public metric addresses these particular claims.
Under existing rules, a claim that is properly completed and postmarked before the statute-of-limitations deadline is considered timely regardless of how long the IRS takes to review it. But filing as early as possible reduces the risk that a mailing delay or clerical error pushes your claim past the cutoff.
A few hours of paperwork or a permanent loss
This is not a task that can wait until next tax season. Once your three-year window closes, the money is gone for good, no matter how straightforward your case is. If you paid failure-to-pay penalties on a 2020 or 2021 return and have not received automatic relief, pull your transcript this week, complete Form 843, and get it in the mail. The cost of acting is a few hours of paperwork and a certified-mail fee. The cost of waiting could be hundreds or thousands of dollars you will never recover.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
