The IRS recently announced it wouldn’t penalize taxpayers whose tax withholding and estimated tax payments fell short last year because of changes in the withholding tables under Tax Reform. The relief is designed to help taxpayers who weren’t able to properly adjust their withholding and estimated tax payments to reflect an array of changes brought on by the Tax Cuts and Jobs Act.
The updated federal tax withholding tables that were released early last year mostly reflected the Tax Cuts and Jobs Act’s lower tax rates and doubled standard deduction. That generally meant taxpayers had less tax withheld from their pay and saw more money show up in their paychecks.
The AICPA and NCCPAP asked the IRS to suspend tax penalties after a report suggested that nearly 30 million taxpayers could have under-withheld their taxes after the passage of the Tax Cuts and Jobs Act.
Typically, a penalty applies at tax filing if too little is paid during the year. The IRS said it would generally waive the tax penalty for any taxpayer who paid at least 85% of their total tax liability last year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. The usual percentage threshold for avoiding a penalty is 90%. That means a taxpayer won’t owe a penalty if they paid at least 85% of their total 2018 tax liability. If the taxpayer paid less than 85%, then they are not eligible for the waiver and the penalty will be calculated as it normally would be, using the 90% threshold. The waiver calculation will show up in an upcoming revision of Form 2210 and its accompanying instructions.
While most 2018 tax filers are still expected to receive tax refunds, the IRS warned that some taxpayers will unexpectedly find out they owe additional taxes when they file their returns this year. The withholding tables didn’t completely take into account other changes, such as the suspension of dependency exemptions and reduced itemized deductions. To help taxpayers get their withholding amount correct in 2019, an updated version of the IRS’s online Withholding Calculator is now available on IRS.gov.
Contact Us: The IRS waiver is limited to individuals whose total withholding and estimated tax payments equal or exceed 85% of the tax shown on the return for the 2018 taxable year. Just because a taxpayer was underwitheld during the year does not automatically mean they will be subject to a penalty tax. Although safe harbors have long been in place to protect taxpayers whose withholding is slightly off from being penalized, Fuoco Group urges clients to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019. You have questions? We have answers! Call 855-534-2727.
