The Internal Revenue Service (IRS) could be updating its tax penalty rules for a select group of Americans.
H.R. 9495, or the Stop Terror-Financing and Tax Penalties on American Hostages Act, was passed Thursday and now heads to President Joe Biden’s desk for approval.
If Biden signs it, the law will postpone tax filing deadlines for Americans and their spouses if they are unlawfully detained abroad or held hostage. There would also be a refund of tax penalties and fines for those detained abroad.
“It’s the right call to make,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek. “For the few that fall into this category, the process of being detained and held against their will can be challenging enough, let alone having to deal with the financial fallout of it due to the IRS wanting them to stay on the same timeline as other taxpayers. This allows the process to ease considerably.”
BRENDAN SMIALOWSKI/AFP via Getty Images
The law would also take away federal funding to nonprofits that offer help to anything deemed a terrorist group.
Due to this stipulation, some Democrats were initially critical that the law could be used as a way to strip control from nonprofits that criticize President-elect Donald Trump. That’s because it would take away the tax-exempt status of nonprofits that are considered to be providing support to terrorist organizations, and the terrorist and support definitions could become murky.
The bill was led by Republican Representatives Jason Smith of Missouri and Claudia Tenney of New York, and 204 Republicans and 15 Democrats voted to pass it.
When it comes to the tax penalties, the IRS can charge Americans for several reasons. Many face charges if they fail to file their tax return on time or if they don’t pay their tax owed on time. The government also charges interest on penalties if they aren’t paid in full, and those can grow every month until the full amount is covered.
The IRS typically sends you a notice or letter regarding the tax penalty, but for Americans held abroad or in hostage situations, the notice often does little to help get the fine paid on time.
Other IRS Changes
In recent months, the IRS has implemented other changes for taxpayers as well.
For the tax year 2023, the IRS updated its standard deductions rule to add on $900 for single filers. Meanwhile, married couples filing jointly will see their standard deduction rise by $1,800.
“By adjusting the deduction upwards, the IRS helps ensure that taxpayers’ purchasing power is not eroded by inflation,” Zack Hellman, the owner of Tax Prep Tech, previously told Newsweek.
The IRS also just announced its new interest rates for 2025, and Americans can expect lower rates for overpayments and underpayments.
Beginning January 1, the rates will be set at 7 percent annually, compounded daily. That reflects a 1 percent cut and the first interest rate decrease the IRS has announced since 2020.
“These adjustments mirror declining inflation and shifting financial markets, potentially offering slight financial relief for taxpayers and businesses,” Michael Ryan, a finance expert and the founder of michaelryanmoney.com, told Newsweek.
“While the changes may seem minor, they can significantly impact those managing substantial tax obligations.”
