Pension & Benefits News IRS gives some taxpayers 2018 withholding and estimated tax penalty waiver
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Wednesday, February 13, 2019

IRS gives some taxpayers 2018 withholding and estimated tax penalty waiver

By Pension and Benefits Editorial Staff

The IRS has announced that it is waiving the estimated tax penalty in certain circumstances, giving some taxpayers a break. The penalty waiver applies to many taxpayers whose 2018 federal income tax withholding and estimated tax payments did not meet the penalty's usual safe harbor.

The IRS designed this relief to help taxpayers who were unable to adjust their tax payments for the changes made by the Tax Cuts and Jobs Act. While the IRS expects most tax filers to get refunds, some will owe additional tax when they file their returns.

Estimated tax penalty. Because the U.S. has a pay-as-you-go tax system, taxpayers must pay most of their tax obligation during the year. Taxpayers do this by having tax withheld from paychecks or pension payments, or making estimated tax payments.

Generally, a penalty applies when taxes are filed if a taxpayer has paid too little during the year. But, the penalty does not apply if the taxpayer meets the safe harbor. The safe harbor is met when:

  • the person's tax payments were at least 90 percent of the tax liability for the year, or
  • the person's tax payments were at least 100 percent of the prior year's tax liability (110 percent when joint filers' gross income is over $150,000).

2018 penalty waiver. The IRS has changed the safe harbor for 2018 tax payments. Now, the IRS will waive the penalty for any taxpayer who prepaid at least 85 percent of their total tax liability for 2018. If a taxpayer paid less than 85 percent, then he or she is not eligible for the waiver. The IRS will calculate their penalty using the 90 percent threshold. For more details, see IRS Notice 2019-11 on http://www.irs.gov.

The new penalty computation will be integrated into commercially available software. The IRS will also update Form 2210 and its instructions to reflect the penalty relief.

“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.”

Withholding checkup. Like last year, the IRS urges everyone to check their withholding for 2019. This is especially important for anyone now facing an unexpected tax bill when they file. Those most at risk of having too little tax withheld from their pay include:

  • taxpayers who itemized in the past but now take the increased standard deduction,
  • two-wage-earner households,
  • employees with nonwage sources of income, and
  • those with complex tax situations.

To help taxpayers get their withholding right, the IRS has updated its online withholding calculator.

SOURCE: IRS News Release IR-2019-03.

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