Contributed by: KristineS, FreeTaxUSA Agent, Tax Pro
Beginning in Summer 2026, the IRS may automatically grant relief for certain penalties on your originally filed tax return. The relief will initially apply to tax year 2025 returns and 2026 quarterly returns for employers/business owners. You may qualify automatically if you filed your previous three years’ tax returns on time and paid the tax due in full by the due date of the return, which is April 15th for most filers.
The new program is called Automatic Exemption from Penalty (AEP). It replaces the previous First Time Abatement (FTA) request program, which required you to request penalty relief in writing or over the phone.
While FTA didn’t require you to submit documentation for relief, you still had to make the request. Under AEP, you don’t need to make a request for relief. If you qualify, the IRS applies relief automatically.
What penalties are eligible for relief?
There are three penalties eligible for automatic relief. The first two types will be the most common for FreeTaxUSA filers:
How do I know if I qualify?
Since the IRS has access to your complete account history, including if you filed on time and paid your tax in full, they can determine your compliance history right away and automatically apply relief if you qualify. You don’t have to do anything.
To qualify, you need to have an on-time filing history (including extensions) for the previous three years. You also need to have paid the tax due by the return due date, which is usually April 15 for most people.
For example, Robert and Cassandra file jointly. Their 2025 tax return was filed May 23, 2026, and they paid the tax due of $1,283 when they filed. They didn’t file an extension. Normally, the IRS would likely assess them both the failure to file and failure to pay penalties, plus interest, because they filed late and paid late.
However, under the new AEP program, IRS systems automatically review Robert and Cassandra’s prior tax compliance history for 2024, 2023, and 2022. For those three years, they filed on or before April 15, or with an extension, and paid the tax due by April 15. This clean compliance history qualifies them for automatic relief from both the failure to file and failure to pay penalties on their 2025 tax return.
The IRS will send Robert and Cassandra a letter stating the penalties weren’t assessed even though they filed late and paid late, because of their prior 3-year compliance history.
Tax returns eligible for this automatic relief include:
- Form 1040, 1065, and 1120
- Form 940, 941, 943, 944, and 945
- Form CT-1
Conclusion
You may automatically qualify for the new penalty relief program starting with your 2025 tax return. The IRS will send you a notice in the mail if you qualify for automatic relief of failure to file and/or failure to pay penalties. During the transition to the AEP program, FTA remains available for certain returns that were processed before the new program took effect. Even if you don’t qualify for penalty relief under the AEP or FTA programs, you may have the option to request penalty abatement under reasonable cause criteria.