Millions of Americans may be owed IRS COVID refunds

Millions of Americans who paid IRS penalties during the pandemic could still be entitled to get that money back. A recent court ruling says the IRS may have wrongly charged certain late-filing and late-payment penalties during the COVID emergency period, opening the door for taxpayers to request refunds that could range from a few hundred dollars to several thousand.

Most people have no idea they may qualify, and the deadline to file is only months away. Here is everything you need to know to see if you’re eligible.

The refunds could be significant

The issue centers around a court case called Kwong v. United States. Last year, the US Court of Federal Claims ruled that federal disaster-related tax extensions should have applied during the COVID-19 pandemic.

Since the pandemic was officially treated as a federal disaster period, tax experts argue that many Americans should not have been charged failure-to-file penalties and failure-to-pay penalties during that timeframe.

The ruling covers the COVID disaster period through July 10, 2023, which includes the official emergency timeline plus an additional 60 days.

Now, IRS penalties add up fast. The failure-to-file penalty is 5% of unpaid taxes per month capped at 25%. The failure-to-pay penalty is 0.5% monthly, also capped at 25%.

For some taxpayers, especially small business owners or people who owed larger balances, that translated into thousands of extra dollars. One accounting professor told reporters that someone who owed $20,000 in taxes could have paid around $5,000 in penalties alone. If the court ruling ultimately stands, that money may need to be refunded.

Refunds are not automatic

The IRS is not automatically sending checks.

People who believe they qualify have to actively request a refund using IRS Form 843. That form asks taxpayers to detail which penalties were paid, during which tax years, and under what circumstances. And according to tax experts, filling it out incorrectly could cause problems.

There’s also a hard deadline. Even though the case could continue in court for a while, taxpayers still face a strict statute of limitations. The filing deadline is July 10, 2026.

Miss it, and you may permanently lose the ability to claim the refund even if courts later side against the government.

This could affect more people than expected

Tax experts say many IRS penalties are not tied to fraud or deliberate tax evasion. Sometimes, people filed late by mistake, misunderstood business filing requirements, missed paperwork deadlines during the pandemic chaos, and struggled financially during COVID disruptions.

And during that period, those situations were extremely common. That’s why the number of potentially eligible taxpayers could be huge.

What you should do now

Anyone who paid IRS failure-to-file or failure-to-pay penalties between January 2020 and July 10, 2023, may want to review old IRS notices, check payment history, talk to a CPA or tax professional, and look into filing Form 843 before the deadline.

Tax experts say professional help may be worth it, especially if large penalties were involved.

Source: New York Post