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IRS Waives Penalty for Some Taxpayers Who Underwithheld in 2018

BY: APA Staff | 01/18/19

The IRS announced it will waive the estimated tax penalty for some taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year [IR-2019-03, 1-16-19].

In a notice, the IRS stated it will waive the penalty for any taxpayer who paid at least 85%, instead of the usual threshold of 90%, of their total tax liability during the year [Notice 2019-11, 1-16-19].

The IRS said the “relief is designed to help taxpayers who were unable to properly adjust their withholding and estimated tax payments to reflect an array of changes under the Tax Cuts and Jobs Act” (TCJA; Pub. L. 115-97). APA has consistently requested that the IRS provide relief from the tax penalties that could occur from the changes made by the TCJA.

Usually, the IRS assesses a penalty if a taxpayer does not pay enough of his or her tax liability throughout the year either through income tax withholding or estimated tax payments. However, for 2018, the penalty will not apply if the taxpayer meets one of these tests:

  • The tax payments were at least 85% of the tax liability for the year, or
  • The tax payments were at least 100% of the prior year’s tax liability (in this case from 2017). The 100% threshold is increased to 110% if a taxpayer’s adjusted gross income is more than $150,000, or $75,000 if married and filing a separate return.

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