IRS Automatic Penalty Relief: AEP Eligibility Checker

This checker walks through the IRS's published rules for Automatic Exemption from Penalty (AEP), its automatic relief for first-time late filing, payment, and deposit penalties. It sorts your facts into one of four results. It doesn't file anything, contact the IRS, or see your account.

Short answer: if you filed on time and paid any tax due for the three prior years (or 12 consecutive quarters for quarterly returns), the IRS now skips the failure-to-file, failure-to-pay, and failure-to-deposit penalties on an eligible original return. It does this automatically during processing, for 2025 tax-year returns and later and 2026 quarterly returns and later, per the IRS administrative penalty relief page. You still owe the tax and interest. If you don't qualify, reasonable cause is a separate way to ask for relief.

The checker is for informational purposes only, and its result is an estimate of how the published rules read against your answers. It is not an IRS determination. For the background and rollout history, read IRS Automatic Penalty Relief (AEP) Explained.

Who qualifies for IRS automatic penalty relief?

The IRS uses one compliance-history test for both AEP and the older First Time Abate (FTA). You need:

1. The same return type, timely filed for the prior three years (or 12 consecutive quarters).
2. No penalties in that lookback period, other than an estimated tax penalty. A penalty that was later removed for reasonable cause or IRS error doesn't count against you.
3. For businesses, two more conditions: the IRS did not waive a failure-to-deposit penalty four or more times in the prior three years (or 12 quarters), and the deposit penalty wasn't charged for avoiding the Electronic Federal Tax Payment System (EFTPS).

On top of the history test, AEP needs an eligible original return. The IRS lists these return series for AEP consideration:

Not eligible under either program: returns filed once or only for specific events, the Daily Delinquency Penalty, and information-reporting penalties that depend on another filing. IRS Tax Tip 2026-59 names Form 706 (estate tax) and Form 709 (gift tax) as examples of event-based returns.

Which IRS penalties does AEP remove?

Rates come from the IRS failure to file and failure to pay penalty pages. A few rules change the math:

• When both penalties apply in the same month, the failure-to-file penalty drops by the failure-to-pay amount: 4.5% + 0.5% instead of 5% + 0.5%. The late-filing penalty maxes out after five months, but the late-payment penalty keeps running.
• If you filed on time and are on an approved payment plan, the failure-to-pay rate drops to 0.25% a month. It rises to 1% a month starting 10 days after an IRS notice of intent to levy.
• Minimum late-filing penalty. For an income tax return more than 60 days late, the penalty is at least the lesser of a set dollar amount or 100% of the tax due. That amount is $525 for returns due in 2026 and $535 for returns due in 2027, such as 2026 Forms 1040 (Rev. Proc. 2025-32).
• The late-filing penalty is a percentage of tax not paid on time. If withholding and credits cover your whole tax, the penalty is zero even if you file late.

Worked example: what a late return costs, and what AEP saves

Dana owes $8,000 on her 2026 Form 1040, due April 15, 2027. She files without an extension and pays in full on July 10, 2027. That's three months or partial months late.

• Failure to pay: $8,000 × 0.5% × 3 = $120
• Failure to file: $8,000 × 4.5% × 3 = $1,080 (the 5% rate reduced by the 0.5% late-payment penalty for the same months)
• Total penalties: $1,200, plus interest on the $8,000 from April 15

The return is more than 60 days late, so the $535 minimum applies, but $1,080 is already higher, so it doesn't change anything.

With AEP. Dana filed and paid on time for 2023, 2024, and 2025 with no penalties, and a 2026 Form 1040 is on the eligible list. So the IRS should not assess the $1,200 when it processes her return, and she gets a letter saying so. She still owes the interest. The IRS comparison table notes another difference: under FTA, the failure-to-pay penalty could keep building until the tax was paid and was removed only later. Under AEP, it isn't assessed on the unpaid tax at all.

Small balance, very late. Someone who owes $400 and files four months late would face about $80 under the 5% monthly rate ($400 × 5% × 4). Because the return is more than 60 days late, the minimum applies instead: the lesser of $535 or 100% of the tax, which is about $400. First-time relief matters most here, because the penalty can equal the whole tax due.

How to answer the checker's questions

Individual or business. Choose Business for employment tax returns (Forms 940, 941, 943, 944, 945), even if you're a sole proprietor filing them under your own name. The checker only accepts a failure-to-deposit penalty for business filers, because deposit penalties come from payroll and other business deposits.

Return or form type. Choose your form. Picking Form 706, Form 709, or "other infrequent-event return" gives a likely outside AEP result. "Other annual" or "other quarterly" returns aren't screened against the IRS list above. If your form isn't on that list, treat an appears eligible result with caution.

Lookback questions. "Filed on time" and "paid on time" stand in for the full IRS test. Answer No if any penalty other than an estimated tax penalty was charged in the lookback period and not removed for reasonable cause or IRS error. Businesses should also answer No if the IRS waived four or more deposit penalties in that period. Answer Unsure if you haven't checked. The result will tell you to pull your records first, which you can do through your IRS online account transcripts.

Original vs amended. The IRS applies AEP "when your original return completes processing." The checker sends amended and supplemental returns to insufficient published guidance, because the IRS hasn't said AEP applies to them.

Original due date. Enter the due date without extensions. Returns due on or after January 1, 2027 are in the window where AEP fully replaces FTA. Tax-year 2025 returns and 2026 quarterly returns are the transition group.

Notices. A penalty notice and an AEP letter are different things. An AEP letter says a penalty was not assessed. A penalty notice is a bill.

What the four results mean

IRS Tax Tip 2026-59 explains the transition result: some qualifying taxpayers may still get penalty notices for 2025 returns and 2026 quarterly returns, and they can ask the IRS for First Time Abate.

How to request First Time Abate or reasonable cause

If a penalty has already been assessed and AEP didn't apply:

1. Call the toll-free number in the top right corner of the notice. You don't have to say "First Time Abate" or send documents. The IRS checks your account for the history test.
2. Or write. Send a signed statement or Form 843, Claim for Refund and Request for Abatement, to the address in the Form 843 instructions.
3. If you don't meet the history test, ask for relief based on reasonable cause. The IRS reasonable cause page says you must show you used ordinary care and prudence and still couldn't file or pay on time. Its examples include fires, natural disasters, inability to get records, death, serious illness, or unavoidable absence of you or an immediate family member, and system issues that delayed an electronic filing or payment.
4. Know what usually fails. Relying on a tax preparer, not knowing the rules, simple mistakes, and lack of funds by itself generally don't qualify.
5. Bring documentation for reasonable cause: hospital or court records with dates, disaster documentation, letters, and receipts. Explain what happened, when, and what you did to try to comply.

If you ask for reasonable cause on the phone and the IRS finds you qualify for First Time Abate, it applies FTA. If neither can be approved on the call, you can request relief in writing on Form 843. If the IRS sends a letter denying relief, its penalty appeal guidance explains the next steps.

Interest. The IRS says that by law it can't remove or reduce interest unless the penalty is removed or reduced. When a penalty comes off, the interest charged on that penalty is reduced or removed automatically. Interest on the unpaid tax itself stays.

Common mistakes with penalty relief

• Expecting AEP to fix an estimated tax penalty. Underpayment of estimated tax isn't covered, and the IRS says reasonable cause doesn't apply to it either. Fix the next year instead with the quarterly estimated tax guide, the 1099 tax calculator, or the W-4 withholding calculator.
• Thinking an extension covers payment. An extension gives you more time to file, not to pay. The failure-to-pay penalty and interest still start on the original due date.
• Not raising reasonable cause when you have it. The IRS history test ignores a prior penalty that was removed for reasonable cause or IRS error. A penalty removed under First Time Abate is not on that exception list. If you have documented reasonable cause, say so when you call.
• Ignoring a penalty notice in the transition period. Silence doesn't mean AEP was applied. If you didn't get an AEP letter, call.
• Not paying while you wait. Interest keeps accruing on unpaid tax either way. If you can't pay in full, a payment plan for an on-time return cuts the late-payment rate to 0.25% a month.

Documents to gather before you call

• The notice, including its number and the phone number printed on it
• The return for the period, and proof of the original due date and any extension
• Your IRS account transcripts for the lookback years or quarters
• Any AEP letter you received
• For reasonable cause, dated records of the event and what you did to try to comply

If you're estimating what you'll owe for a late 2026 return before filing, run your numbers through the federal tax bracket calculator first, then apply the penalty rates above. Freelancers juggling several years of filings can find related tools in the side hustle income hub.

Sources and update log

• IRS: Administrative penalty relief (First Time Abate and AEP), last updated July 14, 2026
• IRS newsroom: IRS introduces new automatic penalty relief process, August 10, 2026
• IRS Tax Tip 2026-59
• IRS: Penalty relief for reasonable cause
• IRS: Failure to file penalty and Failure to pay penalty

October 9, 2026: added the IRS list of AEP-eligible return series, the full compliance-history test (including the prior-penalty and business deposit conditions), penalty rates and the $535 minimum for 2027 due dates, and how to request FTA and reasonable cause.