IRS notices and penalties are never fun to get in the mail. You may be assessed a penalty if you’re late filing your return, paying your balance, or depositing payroll taxes if you’re an employer. On top of the penalties, you’ll also see interest start accruing.
Many taxpayers don’t know about the IRS’s first-time penalty abatement program, which provides penalty relief if you have a history of good tax compliance over the last three years. Up until now, you had to ask the IRS for this form of relief.
But the IRS recently announced that it will roll out a new process where your penalties will be automatically removed for first-time abatement. While not a lot is known about the change yet, this guide walks through what we know, how abatement typically works, and what to expect in 2026 and beyond.
Anytime you’re facing IRS penalties, talk to the team at The W Tax Group about your options for relief. We’ll also help you or your business set up better compliance practices for the future.
Key takeaways:
- First-time penalty abatement is when the IRS waives or reduces tax penalties, including the failure to file, failure to pay, and failure to deposit penalties.
- Taxpayers have historically needed to request first-time abatement, but the IRS will be automatically providing it starting in 2026.
- You can qualify for first-time abatement if you have otherwise good tax compliance in the last three years and are current on all required tax return filings.
- Be wary of any tax resolution company that promises “one-time forgiveness,” since they are probaly referring to first-time abatement, which will now be automatic.
- Ways to avoid tax penalties include filing and paying on time, requesting a payment plan, or applying for relief (an offer in compromise or currently not collectible status).
What Is First-Time Abatement?
The IRS assesses certain penalties if you don’t comply with tax law. Three of the most common penalties are failure to pay, failure to file, and failure to deposit, which may apply if you’re late filing your tax return, paying your balance, or sending in payroll tax deposits.
If you’re charged with one of these penalties but haven’t had any in the last three years, you can qualify for first-time penalty abatement, or first-time abate, wherein the IRS will remove or reduce your penalties because of your history of good tax compliance. Although it’s called “first time” relief, it’s actually available every four years.
Automatic Penalty Relief Starting in 2026
In late 2025, Erin Collins from the Taxpayer Advocate Service (TAS) announced that in 2026, the IRS will automatically give penalty relief to taxpayers who qualify for first-time abatement. This is estimated to impact about a million taxpayers, the majority of whom are lower-income, according to the announcement.
The reasoning behind the change is that most lower-income taxpayers who qualify don’t actually know about first-time abatement or that they have to ask for it. So, now they’ll get relief automatically if they qualify. The change aims to free up time for IRS employees, too, since they’ve historically spent a lot of time handling simple penalty relief requests.
Starting in 2026, if you’re late, you’ll probably still receive a letter in the mail from the IRS that informs you of the automatic penalty abatement. This way, you’ll know moving forward whether you’ve had any penalties waived to monitor your tax compliance history.
Abatement for Reasonable Cause
The other type of IRS penalty abatement is for reasonable cause, which is when the IRS removes or reduces penalties because you essentially had a good reason for being late, such as a natural disaster, death, serious illness, or other circumstance beyond your control.
It is currently unknown whether the IRS has any plans to change the reasonable cause penalty relief program, and for now, the new automatic abatement only applies to first-time penalty abatement.
How to Qualify for Automatic Penalty Abatement
Not all penalties and taxpayers qualify for first-time penalty abatement and thus won’t receive the automatic waivers. Here are the detailed eligibility requirements:
- Taxpayer: Individuals and businesses
- Type of tax return:
- Form 1040 for individuals
- Forms 1065 and 1120 for businesses
- Forms 940, 941, 944, and 945 for payroll taxes
- Type of penalty:
- Compliance history:
- Taxpayer doesn’t have any penalties for the last three years
- For payroll taxes, the business can’t have four or more failure to deposit penalties in the last three years
- Filing requirements: Taxpayers must be current on all required tax returns from the past three years.
- If married filing jointly, both spouses must be compliant to receive the automatic penalty abatement.
For example, if you are late filing your 2025 tax return in 2026 but you didn’t have any penalties and otherwise complied with tax laws for tax years 2024, 2023, and 2022, the IRS will give you an automatic first-time abatement on your late filing and payment penalties on your 2025 tax return.
After that, if you incur additional penalties for tax year 2026, you don’t qualify for first-time abatement. However, if you don’t incur any additional late payment or filing penalties until tax year 2029, you will qualify for first-time abatement again – because that means you were compliant in tax years 2028, 2027, and 2026.
Penalties that don’t qualify include accuracy-related penalties, fraud penalties, or estimated tax penalties. If you’re not sure what kind of penalty you’re dealing with, reach out to the experts at W Tax Group for help.
How Do You Get the IRS to Abate Tax Penalties?
Taxpayers have typically had to reach out and ask the IRS to waive tax penalties for first-time abatement or reasonable cause. Detailed instructions are provided in the IRS notices that outline the penalties and your current balance.
Usually, you can call the IRS to request abatement, and many of these requests are approved right away. If the agent can’t approve the request on the phone, you may need to send in Form 843, Claim for Refund and Request for Abatement, to the IRS through the mail.
Starting in 2026, however, the IRS says this process will be automatic, and you won’t have to ask for the abatement. The agency will go ahead and waive penalties if you qualify for relief, notifying you if your penalty has been waived.
Because this process hasn’t started yet, be sure to watch for the latest news and details from the IRS when you’re dealing with taxes in 2026 and future years.
Can Interest Be Abated?
Interest on its own cannot be abated – except in cases where the delay was due to receiving erroneous advice from the IRS in writing. However, if your penalties are abated, the IRS will automatically abate any interest related to the penalty. So, you don’t have to request this separately.
Anytime the IRS issues a penalty, interest will build on that penalty as well as your unpaid tax balance. For 2025, the latest interest rate for underpayments is 7%, but the rate gets updated quarterly based on the federal short-term rate. Getting both penalties and interest removed can save you a lot of money.
Why You Should Watch Out for “One-Time Forgiveness” Ads
Many tax resolution companies try to bring in clients using misleading language. A common example is “one-time forgiveness,” which they usually use to refer to first-time penalty abatement.
However, since first-time abatement will be automatic starting in 2026, watch out for any person or organization claiming to provide one-time forgiveness. They will no longer have that hook to bring you in for tax services because of the IRS’s upcoming change. Other misleading language to watch out for includes “settle for pennies on the dollar” or “zero tax program.”
How to Avoid Tax Penalties
Of course, you should do everything you can to avoid tax penalties, even with automatic first-time penalty abatement. You want to keep up a history of good tax compliance so you don’t have to pay penalties in the future or deal with any type of legal trouble related to your taxes. Here are a few ways to avoid tax penalties:
File on Time
Maintaining good tax compliance means filing your required returns by the deadline each year—or each quarter if you have to pay estimated taxes or file payroll returns. File your tax return on time, even if you can’t afford to pay your full tax balance right away.
Request an Extension
If you’re unable to file on time, request an extension, which will usually be approved. This extends your deadline for six months to give you more time to gather your documents and get your taxes filed. However, note that an extension doesn’t give you more time to pay.
Pay Your Balance
When you file your taxes, be prepared to pay your balance to avoid penalties and interest from building. Do whatever you can to pay on time, which is usually by April 15.
Request a Payment Plan
If you can’t afford your full balance, you may qualify for an installment agreement. This way, you can pay what you owe in monthly installments instead of all at once. It’s typically easy to apply for a plan online and set up automatic withdrawals via direct debit.
Apply for an Offer in Compromise
Some taxpayers may not be able to afford their tax balance, even with a payment plan. If this is your situation, consider applying for an offer in compromise. This arrangement allows you to pay a partial amount because your financial situation doesn’t allow otherwise.
Request Temporary Hardship Status
The IRS will also consider putting your account in currently not collectible (CNC) status if you’re going through some kind of financial hardship. This is a temporary status, and once your situation improves, the IRS will start trying to collect again.
Ask a Tax Expert
The right path forward looks different for everyone. If you’re not sure what to do about penalties or how to avoid them, talk to a tax professional, like a CPA or tax attorney. These experts will review your circumstances and guide you forward to get back in good standing quickly.
Appeal an IRS Decision
If you don’t agree with an IRS decision, such as a new tax assessment or their decision to deny your penalty relief request, you can appeal. The process to start an appeal is usually outlined in your IRS notices, so be sure to read your document thoroughly. It’s also a good idea to work with a tax attorney if you’re considering an appeal or dispute.
Contact The W Tax Group for Tax Penalty Assistance
Dealing with tax problems, like back taxes and penalties, can be a major headache. But tax issues are some of the most common stressors for Americans.
If you’re dealing with IRS notices, penalties and interest charges, or more serious collection actions from the IRS, talk to a tax professional who can help you get out of debt and avoid additional penalties.
The team of tax experts at The W Tax Group has helped taxpayers through a wide variety of situations, including penalty abatement, unfiled returns, and building tax debt. We’ll help you understand your options and pursue the path that is right for you.
Contact The W Tax Group today to set up a free consultation with our team.
Sources:
https://www.irs.gov/payments/administrative-penalty-relief
https://www.irs.gov/payments/penalty-relief
https://www.irs.gov/payments/interest
https://www.irs.gov/payments/quarterly-interest-rates
https://turbotax.intuit.com/tax-tips/tax-relief/irs-tax-penalty-abatement-and-relief/c0xDLC8Qm
https://www.irs.gov/payments/penalty-relief-for-reasonable-cause
https://www.journalofaccountancy.com/news/2025/nov/about-1-million-taxpayers-to-get-automatic-penalty-relief-next-year/
https://www.natptax.com/news-insights/blog/irs-first-time-penalty-abatement-automatic-in-2026/?srsltid=AfmBOoq_OeVTjU2PX76_4ULL-SrSXbXPbI6xtNRfyNKxkOPP_a_wWoPM
