Relief is Here: IRS Expands Relief Regarding Underpayment Penalty
The Tax Cuts and Jobs Act has brought many new changes for taxpayers across the board. Changes to withholding and tax rates posed a challenging feat for taxpayers and CPAs to navigate the waters of uncertainty surrounding TCJA laws. Some taxpayers have experienced changes to their federal income tax withholding and quarterly estimated payments that were to be made leading up to the 2018 tax year filing to avoid underpayment penalties.
In prior years, the required annual income tax payment an individual taxpayer was required to make to avoid underpayment penalty was the lessor of:
- 90% of the current year
- 100% of the preceding year’s tax (110% if the individual’s AGI on the previous year’s return exceeded $150,000)
However, on March 22nd the IRS announced that it is lowering the amount of tax than an individual must have paid in 2018 to avoid the underpayment of estimated income tax penalty to 80%. Therefore, the IRS is now waiving the estimated tax penalty for taxpayers who paid at least 80% of their total tax liability during the year through their withholding and quarterly estimated payments.
Taxpayers who have already filed for tax year 2018 but qualify for this expanded relief have an option to obtain a refund.
Please contact us with any concerns you may have regarding your withholding and estimated payments going forward.