Yes—request relief for the $340 if it is a late-filing or late-payment penalty and your prior three years qualify; being a W-2 employee does not disqualify you, but the request will not erase the $13,000 tax or all $363 of interest.
“I filed my taxes late and have a $13,000 tax bill due to the PFIC impact of selling foreign mutual funds. I owe a $340 late penalty and $363 in interest. As a W2 employee, how does the IRS First Time Penalty Abatement work, and is it worth requesting, or does it draw unnecessary attention?”
Summary
A penalty-relief request is an ordinary process the IRS expressly invites by phone; the IRS says it reviews your account history, not that you must reopen or argue the entire PFIC calculation. No official guidance found promises that requesting relief can never affect audit selection, so that risk cannot be stated as zero.
The label on your $340 charge, your prior filing record, and any automatic-relief notice determine the right route.
If the $340 is a failure-to-file or failure-to-pay penalty and you timely filed the same type of return for the preceding three years without an unremoved penalty other than an estimated-tax penalty, call the number on your IRS notice and request . The IRS checks its account records; you need not present a special excuse or supporting documents for this request. Your W-2 job does not change the individual-return test. [IRS administrative relief](https://www.irs.gov/payments/administrative-penalty-relief).
If a separate IRS notice says was applied to this eligible return, there is no need to request removal of that same late-file or late-pay penalty again. Reconcile the $340 against the notice: another type of charge can remain due. The 2026 program applies during processing to eligible original returns beginning with tax year 2025; its complete replacement of First Time Abate starts with original due dates on or after January 1, 2027. [IRS administrative relief](https://www.irs.gov/payments/administrative-penalty-relief); [IRS July 2026 announcement](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers).
If you do not meet the three-year First Time Abate test, can separately support relief from a failure-to-file or failure-to-pay penalty if you exercised ordinary care but still could not meet the deadline. This requires your actual facts and supporting documentation; the existence of a PFIC tax bill alone does not establish that test. [IRS reasonable-cause guidance](https://www.irs.gov/payments/penalty-relief-for-reasonable-cause).
If the $340 is an , compare your W-2 withholding and other payments with the IRS safe harbors. Most taxpayers avoid it if they owe less than $1,000 after withholding and refundable credits, or paid at least 90% of current-year tax or 100% of prior-year tax, whichever is smaller; special rules apply to some higher-income taxpayers. Uneven income may also support the annualized calculation on Form 2210, Schedule AI. [IRS Topic 306](https://www.irs.gov/taxtopics/tc306); [IRS estimated-tax penalty guidance](https://www.irs.gov/payments/underpayment-of-estimated-tax-by-individuals-penalty).
An estimated-tax penalty is not among the failure-to-file, failure-to-pay, and failure-to-deposit penalties eligible for First Time Abate. Its exception in the three-year *history* test merely means that a past estimated-tax penalty need not disqualify an otherwise eligible late-file or late-pay request; it does not make the estimated-tax penalty itself abatable under this program. [IRS administrative relief](https://www.irs.gov/payments/administrative-penalty-relief).
None of these routes erases the $13,000 tax; penalty relief reduces only an eligible penalty and its related interest.
Read the full explanationHide the full explanation
Watch out for
Next steps
Identify the charge, stop avoidable growth of the balance, and request only the relief that matches your notice.
First
Identify the penalty and interest on your records
Read the notice’s penalty description: failure to file or failure to pay points to First Time Abate; underpayment of estimated tax points instead to the estimated-tax rules and Form 2210. Separate any Form 8621 section 1291 interest charge from ordinary interest on tax or on the penalty. The IRS’s three-year test concerns timely filing of the same return type and prior unremoved penalties, except estimated-tax penalties. [IRS administrative relief](https://www.irs.gov/payments/administrative-penalty-relief); [Form 8621 instructions](https://www.irs.gov/instructions/i8621).
Requirements
Do not wait for penalty relief
Pay what you can now or arrange payments
Pay at [IRS Direct Pay](https://www.irs.gov/payments/direct-pay) from a bank account, free. If you cannot pay in full, apply through the [IRS payment-plan page](https://www.irs.gov/payments/payment-plans-installment-agreements): with only the balances you listed, an individual can seek a short-term plan to pay within 180 days, with a $0 online setup fee; a monthly plan requires $50,000 or less total and all required returns filed, with an online setup fee of $29 for direct debit or $69 for other online payments. Interest and some penalties continue until payment in full. [IRS payment plans](https://www.irs.gov/payments/payment-plans-installment-agreements).
Requirements
After identifying the charge
Request First Time Abate if the charge qualifies
Call the toll-free number printed at the upper right of your IRS notice and say: “Please review my account for First Time Abate of this failure-to-file or failure-to-pay penalty.” The IRS checks its records; you need not provide supporting documents for this administrative request. If it cannot approve relief by phone, send [Form 843](https://www.irs.gov/pub/irs-pdf/f843.pdf) or a written request to the return address on the income-tax notice. If you have already paid the penalty and seek a refund, the general claim limit is three years from filing the original return or two years from payment of the tax, whichever is later. [IRS administrative relief](https://www.irs.gov/payments/administrative-penalty-relief); [Form 843 instructions](https://www.irs.gov/instructions/i843).
Requirements
Only if the notice identifies estimated tax
Use the alternative if the $340 is estimated-tax penalty
Compare payments against the IRS’s less-than-$1,000 and 90%-of-current-year/100%-of-prior-year safe harbors; special higher-income rules may change the prior-year percentage. If income arrived unevenly, use [Form 2210 and Schedule AI](https://www.irs.gov/pub/irs-pdf/f2210.pdf) to calculate a possible reduction. A casualty, disaster, or other qualifying unusual circumstance has separate, narrow waiver rules; First Time Abate is not the route for this penalty. [IRS Topic 306](https://www.irs.gov/taxtopics/tc306); [IRS estimated-tax guidance](https://www.irs.gov/payments/underpayment-of-estimated-tax-by-individuals-penalty).
Requirements
Legal sources
This answer uses IRS penalty, interest, payment-plan, audit, and Form 8621 guidance, including the IRS’s July 2026 announcement about automatic penalty relief.
IRS Administrative Penalty Relief
The individual-return relief test looks back at timely filing and unremoved penalties, with a specific exception for prior estimated-tax penalties.
Eligibility for FTA and AEP
The same return type, as the original return, was timely filed for the prior three years (or 12 consecutive quarters), and Either no penalty (except the estimated tax penalty) was assessed or a penalty was assessed, but later abated for reasonable cause or IRS error, and
IRS Administrative Penalty Relief
The IRS limits this relief to its listed penalty types, including failure to file and failure to pay.
Penalties eligible for relief
The following penalties are eligible for relief, regardless of amount, under FTA or the new AEP:
IRS Administrative Penalty Relief
A taxpayer may make a straightforward request and the IRS reviews the account for eligibility.
How to request FTA
Though taxpayers must contact the IRS to request this relief, you don’t need to specify FTA as the relief sought or provide supporting documents in your request for relief.
IRS Administrative Penalty Relief
The number printed on the taxpayer’s notice is the direct first route for requesting relief.
How to request FTA
Call the IRS at the toll-free number found in the top right corner of your notice or letter, or
IRS News Release IR-2026-83
The IRS's automatic program can apply to eligible original individual returns from tax year 2025 onward.
AEP applies to eligible original returns beginning with tax year 2025 and 2026 quarterly returns, as well as future tax periods.
IRS News Release IR-2026-83
The 2026 transition does not make every already-assessed penalty disappear without action.
AEP provides relief automatically and will replace First Time Abate for eligible returns with original due dates on or after Jan. 1, 2027.
IRS Internal Revenue Manual 20.1.1.3.3.2.1
Unpaid tax does not by itself prevent abatement of an assessed, qualifying failure-to-pay penalty.
20.1.1.3.3.2.1
If the tax is not paid in full on the module that meets FTA criteria, allow abatement of the FTP penalty under the FTA waiver and use reason code (RC) 062 with the TC 271.
IRS Penalty Relief
The IRS adjusts interest attached to a penalty it removes, not every interest charge on the account.
Interest on a penalty
We’ll automatically reduce or remove the related interest if any of your penalties are reduced or removed.
IRS Interest
Interest on an unpaid tax balance continues independently of a penalty-abatement request.
When interest is charged
In general, we charge interest on underpayments starting on the due date of the amount you owe and will continue to accrue until the balance is paid in full:
Instructions for Form 8621
A PFIC sale under the section 1291 rules can produce a special interest charge separate from an ordinary late penalty.
Section 1291 Fund
The portions allocated to the days in the shareholder's tax years (other than the current tax year) in its holding period when the foreign corporation was a PFIC are not included in income, but are subject to the separate tax and interest charge set forth in section 1291(c).
IRS Topic 306
W-2 withholding is relevant to, but does not automatically eliminate, a penalty for insufficient payments during the year.
If you didn't pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax.
IRS Topic 306
The IRS states the principal estimated-tax safe harbors, subject to its higher-income and other special rules.
Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.
IRS Underpayment of Estimated Tax by Individuals Penalty
An estimated-tax penalty has narrower waiver grounds than a late-filing or late-payment penalty.
Remove or reduce a penalty
While the penalty for underpayment of estimated tax generally cannot be waived due to reasonable cause, the penalty may be removed or reduced if the underpayment is the result of a casualty, local disaster, or other unusual circumstance when it would not be fair to impose the penalty.
IRS Penalty Relief for Reasonable Cause
Reasonable cause is a separate, fact-based fallback when the historical FTA test is not met.
Failure to file or pay penalties
You may qualify for penalty relief if you demonstrate that you exercised ordinary care and prudence and were nevertheless unable to file your return or pay your taxes on time.
IRS Payment Plans
The stated balance fits the IRS online short-term plan ceiling, assuming there are no other balances that change it.
Apply online
Short-term payment plan: You owe less than $100,000 in combined tax, penalties and interest.
IRS Payment Plans
An individual who can finish paying within 180 days can use the online short-term option without a setup fee.
Short-term payment plan
Apply online: $0 setup fee (individuals only)
IRS Payment Plans
A monthly installment plan may also be available for this balance once all required returns have been filed.
Apply online
Long-term payment plan (installment agreement): You owe $50,000 or less in combined tax, penalties and interest, and filed all required returns.
IRS Direct Pay
IRS Direct Pay is a no-fee bank-account route for paying the tax balance.
Free and secure
Instructions for Form 843
Form 843 is the written route if the IRS cannot approve the penalty request by telephone.
Purpose of Form
Use Form 843 to claim a refund or request an abatement of certain taxes, penalties, additions to tax, interest, and fees.
Instructions for Form 843
A person seeking back a penalty already paid must take account of the general refund-claim period.
When To File
Generally, you must file a claim for a credit or refund within 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
IRS Audits
The IRS describes audit-selection methods but makes no specific no-audit promise for a penalty-relief request.
Why am I being selected for an audit?
The IRS uses several different selection methods:
These are the IRS rules and procedures as published on the cited dates; they can change.
This is general information about official tax processes, not legal advice, and SettleKit is not a law firm.
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