IRS Waives 2018 Tax Penalty for Many Taxpayers
The IRS announced recently that it is waiving the estimated tax penalty for many taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year.
The IRS is generally waiving the penalty for any taxpayer who paid at least 85 percent of his or her 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 waiver computation will be integrated into commercially-available tax software and reflected in the forthcoming revision of Form 2210 and instructions.
This relief is designed to help taxpayers who were unable to adjust their withholding and estimated tax payments to reflect changes under the Tax Cuts and Jobs Act. 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 withholding tables could not 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.
Although most 2018 tax filers are still expected to get refunds, some taxpayers will unexpectedly owe additional tax when they file their returns. For further details, see Notice 2019-11, posted on IRS.gov.
The IRS urges everyone to check their withholding for 2019. This is especially important for anyone now facing an unexpected tax bill when he or she files. To help taxpayers get their withholding right in 2019, an updated version of the agency’s online Withholding Calculator is now available on IRS.gov.