Pension & Benefits News IRS provides additional relief for certain taxpayers’ 2018 withholding and estimated tax penalty waiver
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Tuesday, April 9, 2019

IRS provides additional relief for certain taxpayers’ 2018 withholding and estimated tax penalty waiver

By Pension and Benefits Editorial Staff

The IRS has announced expanded penalty relief for certain taxpayers whose 2018 federal income tax withholding and estimated tax payments did not meet the penalty’s usual safe harbor. The IRS is lowering the threshold required to qualify for this relief to 80%. Earlier this year, the IRS had provided penalty relief, setting the threshold at 85% (see Pension Plan Guide Newsletter No. 2340, February 5, 2019). The usual threshold is 90% to avoid a penalty.

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

2018 expanded penalty waiver. The IRS is now waiving the estimated tax penalty for any taxpayer who paid at least 80% of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two.

“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 expanded penalty computation will be integrated into commercially available software. The IRS will also update Form 2210 and its instructions to reflect the penalty relief. Taxpayers who have already filed for tax year 2018 but qualify for this expanded relief may claim a refund by filing Form 843 and include the statement “80% Waiver of estimated tax penalty” on Line 7. This form cannot be filed electronically.

If a taxpayer paid less than 80%, then he or she is not eligible for the waiver. The IRS will calculate their penalty using the 90% threshold. For more details, see IRS Notice 2019-25 on http://www.irs.gov.

SOURCE: IRS News Release IR-2019-55, March 22, 2019, and IRS Notice 2019-25.

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