What is the AEP and what’s changing
Starting in summer 2026, the IRS will introduce the Automatic Exemption from Penalty (AEP) program. Instead of taxpayers having to request relief under the First Time Abate (FTA) program, AEP will automatically provide relief for penalties such as failure to file, failure to pay, and failure to deposit—if the taxpayer has shown a strong history of on-time compliance. (irs.gov)
FTA will be phased out, and AEP will apply to eligible original returns with due dates from tax year 2025 onward, plus quarterly returns in 2026 and later. (irs.gov)
Who is eligible for AEP? Requirements at a glance
| Criteria | Taxpayers must have… |
|---|---|
| Timely Filing History | Filed required tax returns on time for the previous three years (or 12 consecutive quarters for quarterly filers) (irs.gov) |
| Covered Return Types | Forms such as 1040 (individual), Form 1120 (corporate), Forms 940, 941, etc. Not typically eligible: Estate (706) or Gift (709) tax returns. (irs.gov) |
| Eligible Penalties | Penalties for failure-to-file, failure-to-pay, or failure-to-deposit only when returns are eligible and taxpayer qualifies (irs.gov) |
What’s automatic—and what you (still) need to do
- If you meet the eligibility criteria, the IRS will automatically apply AEP—you don’t need to file a formal request or call. (irs.gov)
- Penalty-free processing will occur during return processing. You’ll receive a notice confirming that relief was granted. (irs.gov)
- Even with AEP, interest on unpaid balances still accrues; you still owe taxes and other non-eligible penalties. (irs.gov)
Transition & planning: Tax Year 2025, Quarterly returns, and what to expect
- For tax year 2025 returns and quarterly returns during 2026, eligible taxpayers will see either FTA relief (if still in action) or AEP, depending on timing. (irs.gov)
- Original returns due after Jan. 1, 2027 will be under AEP entirely. FTA will no longer be available then. (irs.gov)
Practical example
- Maria filed and paid her 2022–2024 Forms 1040 on time. Her 2025 return is due April 2026, but she files it on June 1. Under AEP (if she meets other requirements), failure-to-file penalties won’t be assessed—instead IRS will automatically not assess penalties during processing.
- Raj, a small business owner filing Form 941 quarterly payments, paid and filed timely for every quarter in 2025. In 2026 one deposit is late. Because of his clean 2025 quarterly history, he may qualify for AEP and avoid the failure-to-deposit penalty.
Action Items to Maximize Relief
- Keep your compliance history clean—file and pay on time through 2025.
- Track eligibility: ensure your return type is one recognized under AEP.
- When reviewing IRS notices, check if relief was applied. If not and you believe you qualify, contact the IRS.
- Remember: AEP relieves penalties, not interest or tax owed. Ensure payments or filings still completed even if late.
Why this matters
This shift represents a big win for compliant taxpayers—it removes bureaucratic hurdles and recognizes consistent compliance without forcing taxpayers to continually request relief. For many, this means less paperwork, fewer appeals, and lower stress.