The short version: If you filed and paid on time for the past three years, the IRS will now remove late-filing, late-payment and late-deposit penalties on its own, starting with 2025 returns. You’ll get a notice when it happens. You still owe the tax and interest.
Everyone has a bad year now and then. A missed deadline, a payment that went out late, a deposit that slipped through the cracks. Until now, getting a first penalty removed meant calling the IRS or sending a request and asking for “First-Time Abate.”
That’s changing. On July 8, 2026, the IRS announced a new Automatic Exemption from Penalty (AEP). If your record is clean, the IRS applies the relief while it processes your return, so the penalty never gets charged in the first place.
Here’s what it covers, who qualifies, and what you still need to watch for.
What’s changing: from First-Time Abate to automatic relief
The big change is who does the work. Under First-Time Abate, you had to ask. Under AEP, the IRS checks your history and applies the relief itself.
| First-Time Abate (old) | Automatic Exemption from Penalty (new) | |
|---|---|---|
| How you get it | You call the IRS, write a letter or file Form 843 | Automatic. No action needed |
| When it happens | After the penalty is already charged | While the IRS processes your return, before the penalty is charged |
| Penalties covered | Failure to file, failure to pay, failure to deposit | Failure to file, failure to pay, failure to deposit |
| Record needed | Clean history for the prior 3 years (or 12 quarters) | On-time filing and payment for the prior 3 years (or 12 quarters) |
| How you find out | The IRS answers your request | The IRS mails a notice confirming the relief |
When a penalty is removed, the IRS also reduces or removes the interest charged on that penalty.
Who qualifies, and which penalties are covered
AEP is for people and businesses with a good track record. You generally qualify if:
- Yearly returns (like Form 1040 or a business income tax return): you filed on time and paid any tax due on time for the three prior years.
- Quarterly returns (like Form 941 payroll returns): you filed and paid on time for the 12 prior consecutive quarters.
If you qualify, AEP covers three penalties:
- Failure to file: charged when a return is filed late.
- Failure to pay: charged when tax is paid late.
- Failure to deposit: charged when a business makes payroll tax deposits late.
It starts with original returns for tax year 2025 and quarterly returns for 2026, and continues for later years.
Good to know: Like First-Time Abate, AEP generally looks at your history for the same type of return. A clean history on your personal return doesn’t cover a late payroll return for your business, and the other way around.
What AEP doesn’t cover, and what you still owe
AEP removes the penalty, not the bill. You still owe:
- The tax itself, in full.
- Interest on the late tax, which keeps adding up until it’s paid.
- Any other penalties, such as the estimated tax penalty or accuracy-related penalties. AEP only covers the three penalties above.
Some returns generally don’t qualify at all:
- Information returns, such as Forms W-2 and 1099 that businesses file.
- One-time or event-based returns, such as Form 706 (estate tax) and Form 709 (gift tax).
A common surprise is interest. Even with the penalty gone, a balance left unpaid keeps growing, so paying as soon as you can still saves money.
The transition: when First-Time Abate goes away
The IRS began moving to AEP in summer 2026. For a while, both programs overlap:
| Return | What applies |
|---|---|
| Tax years before 2025 (quarters before 2026) | First-Time Abate. You still need to ask for it. |
| Original 2025 returns and 2026 quarterly returns | AEP applies automatically. If you get a penalty notice anyway and think you qualify, you can still call the IRS and ask for First-Time Abate. |
| Returns originally due on or after January 1, 2027 | AEP only. It fully replaces First-Time Abate. |
That middle row matters right now. The IRS says some people who qualify may still get penalty notices for 2025 returns during the changeover, so don’t assume a notice is final.
If you don’t qualify: reasonable cause relief
No clean three-year record? You may still get a penalty removed if something outside your control caused the problem. The IRS calls this reasonable cause. It can include:
- A serious illness, death in the family, or other emergency
- A fire, natural disaster or other event that destroyed records
- Being unable to get the records you needed, despite trying
- A system problem that delayed an electronic filing or payment
Forgetting, simple mistakes or not having the money generally don’t count on their own. Reasonable cause also isn’t automatic. You have to ask, explain what happened, and show you acted as soon as you could. The IRS reviews each request and tells you the result.
This is where an Enrolled Agent can help. I can request relief for you and talk to the IRS on your behalf.
What to do now
- File and pay on time going forward. Each on-time year builds the three-year record that AEP looks for.
- Read any IRS notice carefully. It may confirm that AEP was applied, or it may show a penalty charged during the changeover.
- Got a penalty on a 2025 return or 2026 quarterly return? If you filed and paid on time the three years before, call the number on the notice and ask for First-Time Abate.
- Have an older penalty from 2024 or earlier? First-Time Abate still applies to those years, but you have to ask.
- Pay the tax and interest as soon as you can. AEP doesn’t stop interest on the balance.
- Don’t qualify? Ask about reasonable cause relief, and keep records of what happened.
Tax rules depend on your situation, so ask before you make changes.
Frequently asked questions
Do I need to do anything to get AEP?
No. If you qualify, the IRS applies it while it processes your return and mails you a notice confirming the relief.
Does AEP remove interest too?
It removes the interest charged on the penalty itself. Interest on the unpaid tax still applies until you pay it.
I got a penalty notice for my 2025 return. Is it too late?
No. During the changeover, some people who qualify may still get notices. If your last three years were on time, call the number on the notice and ask for First-Time Abate.
Can I still use First-Time Abate?
Yes, for penalties on returns from before the change and during the transition. For returns originally due on or after January 1, 2027, AEP fully replaces it.
Does AEP cover my business’s payroll returns?
Yes, if your business filed and paid on time for the prior 12 quarters. It covers late-filing, late-payment and late-deposit penalties on those returns.
What if I don’t qualify?
You may still get relief for reasonable cause, such as a serious illness, a disaster or records you couldn’t get. You need to request it and explain what happened.
Need help with this?
As an Enrolled Agent I can deal with the IRS and the NC Department of Revenue for you. Bring your question to a free consultation.
About the author
Yogesh Parajuli, EA is an IRS Enrolled Agent, a licensed North Carolina life and health insurance agent (NC License #18677737) and a notary public. He leads Triangle Tax and Insurance in Cary, NC, and has been preparing taxes since 2016. He helps families and small businesses in English, Hindi and Nepali.
Sources: IRS IR-2026-83: IRS simplifies penalty relief, IRS: Administrative penalty relief, IRS: Penalty relief for reasonable cause