Estimated tax relief

Short on Your 2018 Estimated Taxes? IRS Expands Penalty Relief

The 2017 Tax Cuts and Jobs Act left many taxpayers falling short when it came to paying their estimated taxes.  The IRS has recognized this, and has made accommodations for those affected taxpayers in the form of penalty relief.

 

Penalty Relief Expanded

When the original penalty relief was announced, the threshold for qualifying was set at 85%, with the original threshold being 90%.  This is referring to the amount of a taxpayers actual tax liability that should have been paid throughout the year using estimated installments.  Under the relief program, if 85% of the tax had been paid, no penalty would be assessed.  That percentage is no 80%.

“We heard the concerns from taxpayers and others in the tax community, and we made this adjustment in an effort to be responsive to a unique scenario this year,” said IRS Commissioner Chuck Rettig. “The expanded penalty waiver will help many taxpayers who didn’t have enough tax withheld. We continue to urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019.”

See how to check up on your pay check here.

Taxpayers should use Form 843 (Claim for Refund and Request for Abatement) if they have already filed for tax year 2018 but qualify for this expanded relief. The statement “80% Waiver of estimated tax penalty” should be included on Line 7.  This form cannot be filed electronically.

Today’s expanded relief will help many taxpayers who owe tax when they file, including taxpayers who did not properly adjust their withholding and estimated tax payments to reflect an array of changes under the Tax Cuts and Jobs Act (TCJA), the far-reaching tax reform law enacted in December 2017.

Underpayment Penalty Background

Because the U.S. tax system is pay-as-you-go, taxpayers are required, by law, to pay most of their tax obligation during the year, rather than at the end of the year. This can be done by either having tax withheld from paychecks or pension payments, or by making estimated tax payments.

Usually, a penalty applies at tax filing if too little is paid during the year. This penalty is an interest based amount approximately equivalent to the federal interest on the amount not paid in a timely manner. Normally, the penalty would not apply for 2018 if tax payments during the year met one of the following tests:

  • The person’s tax payments were at least 90 percent of the tax liability for 2018 or
  • The person’s tax payments were at least 100 percent of the prior year’s tax liability, in this case from 2017. However, the 100 percent threshold is increased to 110 percent if a taxpayer’s adjusted gross income is more than $150,000, or $75,000 if married and filing a separate return.

To help taxpayers get their withholding right in 2019, the updated Withholding Calculator is now available on IRS.gov.

Have questions about your 2019 withholding?  Or need assistance filing the penalty abatement form?

At Horizon Expat Tax, We Can Help

Ask about our new client promotions today!

At Horizon Expat Tax we are happy to provide the following quality services:

  • U.S. taxes for taxpayers worldwide
  • U.S. Tax services for individuals immigrating to the U.S.
  • Tax preparation and advisory for U.S. non-residents with U.S. reporting requirements (temporary U.S. work, U.S. rental property, etc)
  • Small business tax compliance, advisory, and bookkeeping services

Any tax advice herein is based on the facts provided to us and on our interpretation of tax legislation as it reads at the time the advice is provided. Tax law is subject to continual change, at times on a retroactive basis and may result in incremental taxes, interest or penalties. We are not responsible for updating our advice for changes in law or interpretation after the date the advice is provided. Every tax situation is different. We are not responsible for the tax implications to any individual or entity that may act on this advice.