IRS Waiving Tax Penalties for Underwithholding

The IRS announced recently that it is generally waiving 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. The usual percentage threshold is 90 percent to avoid a penalty.

The relief, announced in IRS Notice 2019-11, 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 realize there were many changes that affected people last year, and this penalty waiver will help taxpayers who inadvertently didn’t have enough tax withheld,” said IRS Commissioner Chuck Rettig. “We urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019.”

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.


Content for this article originally appeared on the IRS website at IR-2019-03, January 16, 2019.

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