Back in January we told you about an IRS announcement which generally waived the penalty for any taxpayer who paid at least 85 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. There is more good news to share because last week the IRS provided additional expanded penalty relief, lowering the threshold to 80 percent. The usual percentage threshold is 90 percent to avoid a penalty.
The relief, announced in IRS Notice 2019-25, comes after requests from the American Institute of CPAs and other groups amid concerns that taxpayers could have underwithheld their taxes after the passage of the Tax Cuts and Jobs Act in December 2017.
“We heard the concerns from taxpayers and others in the tax community, and we made this adjustment in an effort to be responsive to a unique scenario this year,” said IRS Commissioner Chuck Rettig. “The expanded penalty waiver will help many taxpayers who didn’t have enough tax withheld. We continue to urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019.”
The revised waiver computation will be integrated into commercially-available tax software and reflected in the forthcoming revision of the instructions for Form 2210 (Underpayment of Estimated Tax by Individuals, Estates, and Trusts). Taxpayers who have already filed for tax year 2018 but qualify for this expanded relief may claim a refund by filing Form 843 (Claim for Refund and Request for Abatement) and include the statement “80% Waiver of estimated tax penalty” on Line 7. This form cannot be filed electronically.
The updated federal tax withholding tables, released in early 2018, largely reflected the lower tax rates and the increased standard deduction brought about by the new law. This generally meant taxpayers had less tax withheld in 2018 and saw more in their paychecks.
However, the IRS did acknowledge that:
"The withholding tables couldn’t fully factor in other changes, such as the suspension of dependency exemptions and reduced itemized deductions. As a result, some taxpayers could have paid too little tax during the year, if they did not submit a properly-revised W-4 withholding form to their employer or increase their estimated tax payments."
In planning for 2019, the IRS is encouraging taxpayers to do a “Paycheck Checkup” to avoid a situation where they have too much or too little tax withheld when they file their tax returns next year. In addition, be sure to reference the 2019 tax withholding tables.
Source: https://www.irs.gov/newsroom/irs-expands-penalty-waiver-for-those-whose-tax-withholding-and-estimated-tax-payments-fell-short-in-2018-key-threshold-lowered-to-80-percent. IR-2019-55, March 22, 2019.