For taxpayers who faced unexpected penalties for coming up short on their 2018 taxes, the IRS might be giving them some relief.
CNBC reported on Wednesday, August 14, 2019 that the IRS would automatically waive the tax underpayment penalty for more than 400,000 taxpayers who filed their 2018 federal income returns and did not claim a special penalty waiver during tax season. The waiver only pertains to the penalty. If a person owed taxes, they must pay them.
Usually, someone must pay at least 90 percent of the income taxes they owed for a given year, or 100 percent of the tax liability from the previous year before they actually file in order to avoid paying an underpayment penalty on their tax return. The threshold is apparently 110 percent if an individual’s adjusted gross income for that year’s return was over $150,000.
The Trump tax reforms cut individual income taxes, eliminated personal exemptions, and doubled the standard deduction. Because of this, not all taxpayers were correctly withheld for 2018.
To aid taxpayers in their adjustment to these changes during the 2018 tax season, the IRS lowered its 90 percent threshold to 85 percent in January and to 80 percent in March.
The new waiver that was revealed on Wednesday only applies to filers who paid a minimum of 80 percent of their total tax liability for 2018 and also failed to claim a special waiver when they originally filed their return.
In statement, IRS commissioner Charles Rettig said, “The IRS is taking this step to help affected taxpayers.”
He added, “This waiver is designed to provide relief to any person who filed too early to take advantage of the waiver or was unaware of it when they filed.”
IRS data found that the average penalty was roughly $180 for the 2018 tax filing season.
With how complicated the U.S. tax code has become, any form of tax relief is welcome.
Trump’s tax reforms were a good first step. Hopefully, D.C. can get its spending in check, so that even bigger tax cuts can be implemented. America still needs a vast tax overhaul if it wants to remain the #1 economy in the world.