The IRS announced that the relief that it announced
earlier this year, with respect to the individual taxpayer estimated tax
penalty for 2018, will be automatically applied to taxpayers who filed their
2018 returns but did not claim the relief.
Background-the individual taxpayer
estimated tax penalty, generally. Code Sec. 6654 imposes a penalty
on individuals who underpay estimated tax. To avoid the penalty, each of four
required installments must equal 25% of the "required annual
payment", which generally is the lesser of:
- 90% of the tax shown on the individual's return for
that year (or, if no return is filed, 90% of his or her tax for that year),
or
- If the individual filed a valid return for the
immediately preceding tax year, 100% of the tax shown on that return - 110% if a taxpayer's adjusted gross income was more
than $150,000 ($75,000 if married and filing a separate return).
Income taxes withheld from wages are treated as paid evenly
throughout the tax year, unless the taxpayer establishes the dates on which the
amounts were actually withheld.
Background-changes
made by the Tax Cuts and Jobs Act. The Tax Cuts and Jobs Act was a comprehensive tax overhaul that dramatically changed
the rules governing the taxation of individuals for tax years beginning before
2026, providing new income tax rates and brackets, increasing the standard
deduction, suspending personal exemptions, increasing the child tax credit,
limiting the state and local tax deduction, and temporarily reducing the
medical expense threshold, among many other changes. TCJA also provided a new
deduction for non-corporate taxpayers with qualified business income from
pass-throughs. Many of the TCJA's changes impacted withholding.
A
Government Accountability Office (GAO) report estimated that nearly 30 million
taxpayers could be underwithheld in 2018.
Background-previous
IRS pronouncements about relief. In response to expressions of
concern by members of Congress and other groups about withholding difficulties,
IRS provided in Notice 2019-11, 1/16/2019, that the estimated tax penalty under
Code Sec. 6654 for the 2018 tax year was waived for individuals whose total
withholding and estimated tax payments made by Jan. 15, 2019, equaled or exceed
85% of the tax shown on their 2018 returns.
Notice
2019-11 instructed taxpayers who hadn't yet filed their 2018 return to request
the tax relief via Form 2210, Underpayment of Estimated Tax by Individuals,
Estates and Trusts. Taxpayers who had already filed their 2018 return were
instructed to file for a refund on Form 843, Claim for Refund and Request for
Abatement.
Then, in
March 2019, IRS expanded the estimated tax penalty waiver that it previously
announced so that it applied to taxpayers whose total 2018
withholding and estimated tax payments made by Jan. 15, 2019 was 80% or more of
their 2018 taxes, down from 85%.
IRS makes
the relief automatic. IRS has now announced that the relief contained in the earlier
Notices will automatically apply to those taxpayers who already filed their
2018 federal income tax returns but did not claim the relief.
Over the
next few months, IRS will mail copies of notices CP 21 (which cover changes to
tax returns) granting this relief to affected taxpayers. Any eligible taxpayer
who already paid the penalty will also receive a refund check about three weeks
after the CP21 notice is mailed regardless if they requested penalty relief.
IRS emphasized that eligible taxpayers who have already filed a 2018 return do
not need to request penalty relief, contact IRS, or take any other action to
receive this relief.
IRS urges persons who have not yet filed for 2018 to claim the waiver on their return. This group includes those with tax-filing extensions due to run out on Oct. 15, 2019. Taxpayers who file electronically should use the waiver computation built into their tax software. Those who choose to file on paper should fill out Form 2210 and attach it to their 2018 return.