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IRS to Waive Tax Penalties for Underwithholding and Underpayment

The Internal Revenue Service (IRS) announced on Wednesday, January 16, 2019 that it is waiving a penalty for some Americans who may have unintentionally underpaid their 2018 tax liabilities. 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.

Historically, individuals have been able to avoid underpayment penalties if:

  • They have a combination of withholding and timely paid estimates that exceed 100% of the tax shown on the prior year return. The threshold increases to 110% if Adjusted Gross Income in the prior year exceeded $150,000.
  • They have a combination of withholding and timely paid estimates that exceed 90% of the current year tax.

Due to errors in the adjusted withholding tables released in 2018 in response to the 2017 Tax Cuts and Jobs Act (TCJA), the second threshold has been reduced from 90 to 85% with respect to 2018 returns.

The full news release from the IRS is available here: IR-2019-03 >>

AAFCPAs advises clients to check their withholding for 2019, as the second penalty avoidance threshold is expected to revert back to 90%. This is especially important for anyone now facing an unexpected tax bill when they file. This is also an important step for those who made withholding adjustments in 2018 or had (or are expecting) a major life change to ensure the right tax is still being withheld.

If you have any questions, please contact: Richard Weiner, CPA, MST at 774.512.4078, rweiner@nullaafcpa.com; or your AAFCPAs Partner.  We welcome the opportunity to provide strategic tax advice for you.

About the Author

Richard Weiner CPA
Rich has over 30 years of broad tax experience with a specialty in tax planning and consulting for private and publicly-held businesses. Rich has specific expertise in the Software, Bio-Technology, Medical Device, Life Science, Manufacturing, Retail, Professional Service and Publishing industries, as well as U.S. aspects of international taxation. He works extensively with European companies expanding into the U.S. market. Additional areas of focus include companies and stockholders in transition, including structuring of and planning for Mergers & Acquisitions, planning for changes in ownership and management, and adoption of tax methodologies with a view toward the long term. He is well known in his field and is a frequent speaker on a variety of tax related topics.