Millions of Taxpayers May Qualify for COVID-Era Penalty Refunds With July 2026 Deadline

Tens of millions of Americans may be eligible for refunds of penalties and interest paid on pandemic-era tax returns. A federal court ruled last November that a tax provision requiring filing extensions during disasters should have applied to the COVID-19 pandemic, which ran from Jan.

20, 2020, through July 10, 2023. The ruling in Kwong v. United States determined that taxpayers charged failure-to-file or failure-to-pay penalties during that period should not have been assessed those charges. Refunds are not automatic. Taxpayers must request them before a three-year statute of limitations expires.

The court decision covered the federal disaster period through May 11, 2023, plus an additional 60 days. That extended the covered period to July 10, 2023. The three-year deadline means taxpayers have until July 10, 2026, to file for relief, even if the case continues in court beyond that date.

Failure-to-file penalties equal 5 percent of unpaid taxes per month, capped at 25 percent. Failure-to-pay penalties equal 0.5 percent per month with the same cap. A taxpayer who owed $20,000 in taxes and paid a $5,000 failure-to-pay penalty could qualify for a $5,000 refund, depending on individual circumstances.

The form requires filers to specify the type of penalties paid and the taxes involved. Accuracy is required, as errors can lead to denial of the request. An accounting professor at North Carolina State University said the number of people affected is likely large.

“I would suspect it’s a pretty big number. This happens to millions of people annually,” he told The Post. He added that many penalties arise from paperwork errors rather than intentional noncompliance. “Sometimes it’s just people who kind of mistakenly don’t file or it’s their first time owning a business and they didn’t realize some of this stuff was gonna factor in and they should’ve filed a separate return.

Sometimes it’s by complete mistake,” he said. The government could still appeal the ruling, which is not yet final. Taxpayers facing uncertainty may consider consulting a CPA before submitting Form 843. “When you’re trying to fight the government on getting some of your money back, it really can be just a worthwhile investment to spend that $500 to make sure you get back $10,000 or something,” the professor said.

“Even if you’re not sure, once July 11 hits, you are no longer eligible. Now is the time to really be jumping on this,” he added.