31 Jan The IRS is Waiving Tax Underpayment Penalties
The Internal Revenue Service has announced that they are waiving the estimated tax penalty for many taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year. The IRS is generally waiving the penalty for any taxpayer who paid at least 85 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. The usual percentage threshold is 90 percent to avoid a penalty. This relief is designed to help taxpayers who were unable to properly adjust their withholding and estimated tax payments to reflect the plethora of changes enacted under the Tax Cuts and Jobs Act (TCJA), the tax reform law enacted in December 2017 and going into effect for the 2018 tax year.
How Many Allowances Should I Claim On My W-4?
The updated federal tax withholding tables, released in early 2018, largely reflected the lower tax rates and the increased standard deduction brought about by the new law. This generally meant taxpayers had less tax withheld in 2018 and saw more in their paychecks. However, the withholding tables couldn’t fully factor in other changes, such as the elimination of dependent exemptions and reduced itemized deductions. As a result, some taxpayers could have paid too little tax during the year, if they did not submit a properly revised W-4 withholding form to their employer or increase their estimated tax payments. Although most 2018 tax filers are still expected to get refunds, some taxpayers will unexpectedly owe additional tax when they file their returns. We encourage everyone to do a “Paycheck Checkup” to avoid any unwanted surprises when you file your tax returns. To help taxpayers get their withholding right in 2019, an updated version of the IRS’ online Withholding Calculator is now available on IRS.gov at https://apps.irs.gov/app/withholdingcalculator/
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