Calculator
IRS Mid-Year Standard Mileage Rate Split Calculator (2026)
Calculate your split-year 2026 vehicle tax deduction (H1 at 72.5¢ vs H2 at 76¢ per mile) under IRS Announcement 2026-11.
Try it nowGuide & How-To
Determine your eligibility for the new 2026 IRS Automatic Exemption from Penalty (AEP) program established under IRS Fact Sheet FS-2026-12 (July 2026). Calculate Failure to File, Failure to Pay, and Failure to Deposit penalties and estimate your relief savings.
What is the IRS Automatic Exemption from Penalty (AEP FS-2026-12)?
Launched on July 8, 2026 under IRS Fact Sheet FS-2026-12 (and IR-2026-83), the Automatic Exemption from Penalty (AEP) is a new administrative relief program designed by the IRS to simplify penalty waivers for eligible taxpayers. Replacing the manual First-Time Abate (FTA) process, AEP automatically applies relief to eligible tax forms during processing if the taxpayer meets history of compliance guidelines.
AEP eligibility requirements
To qualify for the automatic penalty waiver, you must meet the following rules: 1. Clean compliance history: You must have timely filed and paid taxes for the last 3 tax years (or 12 consecutive quarters for business quarterly returns) without any penalty assessments. 2. Eligible forms: Applies to standard personal tax returns (Form 1040) and business returns (Form 1120). Infrequent transactional forms like estate or gift taxes are excluded. 3. Deposit penalties: AEP is not automatically applied to Failure to Deposit (FTD) penalties for businesses unless specific clearinghouse criteria are met.
How IRS penalties accrue
Failure to File (FTF) penalty is charged at 5% of the unpaid taxes for each month or part of a month the return is late, capping at 25%. Failure to Pay (FTP) is charged at 0.5% per month, capping at 25%. If both apply, the combined penalty is 5% per month (4.5% FTF and 0.5% FTP). Failure to Deposit is 2% to 15% depending on how late the deposit is.
What the numbers actually mean for you
The filing penalty is nine times the paying penalty
The FTF meter (4.5%/month) runs nine times hotter than the FTP meter (0.5%/month), which produces the single most useful rule in this corner of the tax code: ALWAYS file on time, even broke. Filing an extension or the return itself with no payment attached shuts off the big meter and leaves only the small one running.
Omar's $1,500 penalty would have been $150 had he filed in April and paid in July, same money, same delay, one-tenth the penalty, before any relief program enters the picture. The extension form takes minutes and is free; the arithmetic case for it borders on unfair. An extension moves the filing deadline, not the payment one, but it kills the expensive meter.
AEP: the waiver you no longer ask for
Under the old First-Time Abate process you had to know the waiver existed, call or write, and argue your record. FS-2026-12 flipped the default: since July 2026 the IRS computer checks your three-year history during processing and applies the waiver on its own. The taxpayers who used to lose out, the ones who never knew to ask, are exactly who the automation rescues.
The gate is strict and binary. Any penalty assessment in the prior three years, even a small one that was itself later waived for reasonable cause, resets the clock. AEP also covers primary returns (1040, 1120) and the FTF/FTP pair specifically, not accuracy-related penalties, not fraud, not international information filings like FBAR, those have their own, far harsher regimes.
Do not file Form 843 to 'claim' AEP, it is not a claim, and the paper only adds processing delay. Your online IRS account shows the three-year history if you want to verify eligibility before deciding how fast to fix a late year.
If the gate fails, reasonable cause still exists
A blemished three-year record does not end the conversation. The traditional reasonable-cause path, illness, disaster, records destroyed, a death in the family, still takes Form 843 and a factual story, and it can waive the same penalties AEP would have. It is slower and human-reviewed, but it is the designed fallback, not a long shot.
Sequence matters when you are behind on multiple years: bring the OLDEST year current first, because each cleanly resolved year rebuilds the history the automatic program reads. A taxpayer who fixes three years properly re-enters AEP eligibility for the next slip; one who lets small penalty assessments accumulate keeps resetting their own clock.
And whatever the penalty outcome, set up a payment plan for the tax itself. An installment agreement drops the FTP rate to 0.25% per month while it is active and stops the enforced-collection machinery, liens and levies cost far more than the paperwork.
After filing, watch the mail for the CP47-series notice confirming the waiver; if the balance-due letter that arrives instead still shows penalties you believe AEP should have removed, a single call quoting FS-2026-12 and your clean transcript resolves most cases, because the eligibility data is already sitting on the IRS agent's own screen when you call.
How the penalty and waiver math works
Two meters run when you miss the filing deadline with a balance due: Failure to File at 4.5% of the unpaid tax per month (5% when filing late without also paying late, capped at 22.5%/25%), and Failure to Pay at 0.5% per month (capped at 25%). The Automatic Exemption from Penalty program, IRS Fact Sheet FS-2026-12 of 8 July 2026, wipes both automatically if your last three years are clean.
The calculator accrues both penalties on your inputs, then tests the AEP gate: three consecutive prior years with returns filed, tax paid, and zero penalty assessments. Pass and the penalty line goes to zero; fail and you are looking at the real bill.
Calculation Steps:
- Enter the unpaid tax and how many months (or part-months, they count in full) the return and payment ran late.
- FTF accrues at 4.5% per month when FTP runs alongside it (5% alone), to a 22.5% (25%) ceiling; FTP accrues at 0.5% per month to its own 25% ceiling.
- The two penalties sum into the pre-relief total.
- AEP check: clean filings, payments, and no penalty assessments for the three prior tax years. Eligible means the whole penalty is waived during processing, no form, no phone call.
- Interest is NOT in the waiver: it accrues on the unpaid tax daily either way, which is why the principal still wants paying fast.
Worked example
Omar owes $10,000 on his 2025 Form 1040 and files three months late in July 2026, having paid nothing at the April deadline.
FTF: $10,000 x 4.5% x 3 = $1,350. FTP: $10,000 x 0.5% x 3 = $150. Pre-relief penalty: $1,500, fifteen percent of the tax, for ninety days of delay.
His 2022-2024 record is spotless: filed on time, paid on time, no assessments.
AEP applies during return processing: the $1,500 vanishes and the IRS sends a notice confirming the waiver he never had to request.
He still owes the $10,000 plus roughly $190 of statutory interest for the quarter, interest is set by law and no program waives it.
Input definitions
Review the glossary of terms used in the calculation model below. Click on highlighted links to read more in-depth definitions in our financial glossary:
| Parameter | Definition & Context |
|---|---|
| Unpaid Tax Amount | The balance actually due with the return. Penalties are percentages of this figure, so it drives everything. |
| Months Late | Whole or partial months past the deadline; the IRS rounds part-months UP, so one day into month four bills four months. |
Built & Maintained
