IRS Automatic Penalty Relief (AEP) Explained

Updated October 2026. The IRS Automatic Exemption from Penalty (AEP) stops failure-to-file, failure-to-pay, and failure-to-deposit penalties from being assessed on an eligible original return when you filed and paid on time for the prior three years (or 12 consecutive quarters). It applies to 2025 tax-year returns, 2026 quarterly returns, and later periods, and it fully replaces First Time Abate for eligible returns with original due dates on or after January 1, 2027.

This article sticks to what the IRS has published: IR-2026-83 (July 8, 2026), the IRS page on penalty relief due to First Time Abate or other administrative waiver, the August 10, 2026 newsroom page, and Tax Tip 2026-59. It is not legal advice and not a guarantee that any penalty will be removed.

To walk through the tests for your own return, use the IRS Automatic Penalty Relief: AEP Eligibility Checker. It maps your answers to the published rules and never says you are guaranteed relief.

What AEP changed

For years, First Time Abate (FTA) let taxpayers with a clean record ask the IRS to remove certain penalties. The rules were reasonable; the process was the obstacle. You had to know FTA existed, then call the number on your notice or send a written request or Form 843.

AEP keeps the same idea — a timely compliance history earns a pass — but changes who does the work. When the IRS's records show the history, it doesn't assess the penalty at all during original-return processing, then mails a letter explaining that the late filing, late payment, or late deposit was forgiven because of your history. The IRS says you don't need to contact it or respond to that letter.

That is a different workflow from three things people confuse it with:

• Asking for reasonable-cause relief because illness, a disaster, or another event outside your control made you late
• Avoiding the estimated-tax penalty by meeting a Form 2210 safe harbor
• Calling to request FTA on a notice that already billed you

AEP versus First Time Abate

The IRS comparison table spells out the practical differences.

The accrual row matters more than it looks. Under FTA the failure-to-pay penalty kept growing at 0.5% a month until you paid, and you then asked for it all to be removed. Under AEP that penalty simply isn't charged for the eligible period — but interest on the unpaid tax still runs.

Which returns and penalties AEP covers

The IRS lists the return series eligible for AEP consideration:

• Income tax: Forms 1040, 1065, and 1120
• Employment tax: Forms 940, 941, 943, 944, and 945
• Railroad retirement: Form CT-1

Form 1120-S is not named in that list, even though the S corporation late-filing penalty is listed among the penalties FTA and AEP can relieve. Until the IRS says otherwise, treat an S corporation return as a question to ask, not an automatic yes.

The penalties eligible for relief, regardless of amount:

For a typical individual, that means the failure-to-file and failure-to-pay penalties on Form 1040. Failure-to-deposit relief matters to employers filing Forms 941, 940, 943, 944, or 945.

Everything else is outside AEP: the estimated-tax penalty, accuracy-related penalties, information-return penalties, the daily delinquency penalty, and trust fund recovery penalties.

How to qualify: the compliance history test

The IRS defines a timely compliance history in two parts:

1. The same return type as the late return was filed on time for the prior three years — or the prior 12 consecutive quarters for quarterly returns such as Form 941.
2. No penalty was assessed in that lookback, except an estimated-tax penalty — or a penalty was assessed but later removed for reasonable cause or IRS error.

Business taxpayers face two more conditions:

• The IRS did not waive a failure-to-deposit penalty four or more times during the lookback period
• No failure-to-deposit penalty was charged for EFTPS avoidance

Note what isn't on the list. A prior estimated-tax penalty does not disqualify you. A penalty removed because the IRS made an error does not count against you. A penalty you paid without contesting it does.

If you can't answer the lookback honestly, pull your IRS account transcripts before you assume anything. The checker treats "unsure" as a reason for manual review, not as eligibility.

Returns that don't qualify

The IRS excludes three categories:

• Returns filed once or infrequently — event-based filings such as Form 706 (estate tax) and Form 709 (gift tax)
• The daily delinquency penalty
• Information reporting that depends on another filing — information returns generally aren't eligible

AEP also runs during original-return processing. The IRS hasn't said how it treats amended or supplemental returns, so don't assume a Form 1040-X will trigger it.

Rollout timeline

These dates come straight from the IRS releases:

• July 8, 2026 — IR-2026-83. The IRS announces AEP, says it will begin phasing out FTA "during the summer of 2026," and says AEP replaces FTA for eligible returns with original due dates on or after January 1, 2027.
• July 30, 2026 — Tax Tip 2026-59. Restates the three-year and 12-quarter tests and that eligible taxpayers will receive a notice when relief is granted.
• August 10, 2026 — IRS newsroom page. Confirms AEP covers eligible 2025 tax-year returns, 2026 quarterly returns, and future periods.
• January 1, 2027. Eligible returns with original due dates on or after this date get AEP instead of FTA.

Due dates decide which side of the line you're on. A 2025 Form 1040 was due April 15, 2026, so it sits in the transition window. A 2026 Form 1040 is due in April 2027, after the cutover. A Form 941 for the second quarter of 2026 was due July 31, 2026 — also in the transition window.

Worked example: what AEP is worth on a late Form 1040

Suppose your 2025 Form 1040, due April 15, 2026, showed a $10,000 balance. You filed and paid on July 10, 2026, a little under three months late, after three earlier years of on-time filing and payment.

The penalties the IRS would otherwise assess, using its published rates:

• Failure to pay: 0.5% per month or part of a month. Three months × 0.5% × $10,000 = $150
• Failure to file: 5% per month or part of a month, reduced by the 0.5% failure-to-pay penalty for the same months, so 4.5% × 3 × $10,000 = $1,350
• Total penalties: $1,500

Under AEP, if IRS records confirm your history, none of the $1,500 is assessed and you get a letter instead of a bill. You still pay the $10,000 plus interest from April 15.

If the return was processed before AEP was running, you may get a $1,500 penalty notice instead. That is the transition case: call the number on the notice and ask for First Time Abate.

Had the return been more than 60 days late with little tax due, the minimum failure-to-file penalty would matter: for returns due after December 31, 2025, it is the lesser of $525 or 100% of the unpaid tax. AEP covers that penalty too.

What happens automatically — and what to do with a penalty notice

When AEP applies, the IRS describes this sequence:

1. Your eligible original return completes processing
2. IRS records show a timely history for the lookback
3. The failure-to-file, failure-to-pay, and failure-to-deposit penalties are not assessed
4. You receive a letter explaining that the penalties were not assessed because of your history

You don't need to respond to that letter. Keep it with the return.

If instead you receive a notice that assesses one of those penalties and you believe you qualify:

1. Don't ignore it — the balance and interest keep growing
2. Call the toll-free number in the top right corner of the notice
3. Have the notice, the tax year or quarter, and your filing history ready
4. Ask whether AEP should have applied, or request First Time Abate if the return is from the transition window

You don't have to name FTA or send documents to request it; the IRS reviews your account. If a phone request doesn't resolve it, the IRS also accepts a written statement or Form 843.

AEP versus reasonable-cause relief

Reasonable cause is relief for taxpayers who used ordinary business care and prudence but couldn't comply because of circumstances beyond their control — a serious illness, a fire, or a natural disaster, for example. AEP is an administrative waiver based purely on your record.

If you don't meet the three-year or 12-quarter history, AEP isn't coming. The IRS says you can still request penalty relief for reasonable cause, and it will notify you of its decision. Neither this article nor the checker decides whether your facts qualify.

Interest and tax still apply

Every IRS source repeats the same limit: AEP prevents certain penalties, but you must still pay the tax, interest, and any penalty AEP doesn't cover. When the IRS reduces or removes a penalty, it automatically reduces the interest charged on that penalty — but interest on the tax itself stays.

That's why an "appears eligible" result can sit next to a large balance due. Pay the tax as soon as you can.

People who under-withheld on W-2 pay, or skipped quarterly estimated payments on 1099 income, usually face the estimated-tax penalty instead. That's fixed with withholding and estimates — the W-4 tax withholding calculator and the 1099 tax calculator help — not with AEP.

Scenarios at a glance

Sources and update log

• IRS: Penalty relief due to First Time Abate or other administrative waiver — eligible forms, penalties, history test, exclusions, FTA/AEP comparison
• IR-2026-83: IRS simplifies penalty relief, introduces automatic process — July 8, 2026
• IRS introduces new automatic penalty relief process — August 10, 2026
• IRS Tax Tip 2026-59 — July 30, 2026
• Failure to file penalty and failure to pay penalty — rates used in the worked example

Update log

• August 2026: First publication.
• October 2026: Rebuilt on the IRS administrative-relief page — added the eligible return-series list (Form 1120-S not named), the penalty code sections, the business failure-to-deposit conditions, the estimated-tax exception in the history test, the exclusions for the daily delinquency penalty and information returns, the FTA/AEP comparison, and a worked example.

This article is for informational purposes only. Confirm current procedures on IRS.gov, and talk to a tax professional when a notice or a large balance is involved.