The IRS is giving hundreds of thousands of taxpayers a second chance to avoid an estimated tax penalty and they don’t even have to lift a finger!
Specifically, the IRS says it is providing an automatic waiver from estimated tax penalties for more than 400,000 taxpayers who have already filed their 2018 federal income tax returns, but didn’t claim the initial waiver (IR-2019-144, 8/14/19).
The IRS will apply the automatic waiver to the tax accounts of all eligible taxpayers, so there’s no need to contact the agency to apply for it or request it. Taxpayers who don’t pay enough income tax to the IRS during the year, in the form of tax withholding and/or installment payments, may be liable for the estimated tax penalty. Usually, you can avoid the penalty by paying at least 90 percent of your current tax liability or 100 percent of the prior year’s liability (110 percent if your AGI exceeded $150,000).
But the IRS reduced the usual 90 percent penalty threshold to 80 percent earlier this year to help taxpayers who did not pay enough estimated tax for the 2018 tax year. It also removed the requirement for estimated tax payments to be made in four equal installments as long as they were all made by January 15, 2019. The 90 percent threshold was initially lowered to 85 on January 16 and then reduced again to 80 percent on March 22.
The IRS has been showing leniency to taxpayers in the wake of the Tax Cuts and Jobs Act (TCJA). Under the TCJA, which generally affects individuals from 2018 through 2025, certain deductions and personal exemptions were eliminated along with numerous other changes, causing many taxpayers to unexpectedly come up short on their annual payments.
"The IRS is taking this step to help affected taxpayers," said IRS Commissioner Chuck Rettig in a press release. "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."
Over the next few months, the IRS plans to mail copies of Notice CP21 granting this relief to affected taxpayers. Any eligible taxpayer who has already paid the penalty will also receive a refund check about three weeks after their CP21, whether or not they requested penalty relief. The IRS emphasized that eligible taxpayers who have already filed a 2018 return don’t have to request penalty relief, contact the agency or take any other action to receive this relief.
For those who haven’t filed their 2018 return yet, the IRS urges every eligible taxpayer to claim the waiver on their return. This includes those with filing extensions lasting until October 15, 2019.
The quickest and easiest way is to file electronically and take advantage of the waiver computation built into the tax software package. Anyone who chooses to file on paper can fill out Form 2210 and attach it to their 2018 return. More details are available on the Form 2210 instructions.
Get the word out to your clients today about this special tax relief, they will likely appreciate the effort.
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a...