Internal Revenue Service Waives Estimated Tax Penalty for Eligible 2018 Taxpayers

The U.S. Internal Revenue Service will automatically waive estimated tax penalties for some 400,000 taxpayers who were eligible for earlier penalty relief, but who filed too early to take advantage of it.  See IR-2019-144.

During the 2018 filing season, the IRS twice lowered the estimated tax penalty threshold due to taxpayer withholding issues stemming from the enactment of the Tax Cuts and Jobs Act (TCJA).  Because of the numerous changes to individual tax provisions, many taxpayers incorrectly calculated their withholding, or failed to change withholding that had become incorrect. 

Under the tax code, an estimated tax penalty applies if the taxpayer’s withholding and estimated tax payments are not at least 90% of tax owed for the current year, or 100% of the tax owed for the prior year.  During the filing season, IRS first reduced the required withholding or estimated tax to 85% of tax owed, and later to 80% of tax owed.  According to the Treasury Department, this relief would mean at least 25% to 30% fewer taxpayers would owe penalties.

However, it was necessary for eligible taxpayers to claim the relief on their returns.  Many had already filed early.  Others filed between the two waivers and would have qualified at the 80% threshold but not 85%.  According to the IRS, there are some 400,000 taxpayers who qualify for but who did not receive the penalty relief.

In a welcome development, IRS will not require any eligible taxpayer to affirmatively claim the relief.  Instead, it will itself determine the taxpayers who paid unnecessary penalties, and provide refunds over the next few months. 

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How This Will Impact Mobility

Many transferees were among those who were under withheld as a result of TCJA changes, and those who meet the penalty relief guidelines will have their penalties refunded.

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