(Forbes)
Last year, the General Accounting Office (GAO) warned that millions of taxpayers could owe more in taxes come tax time. Without proper planning (and a withholding checkup), those taxpayers could be surprised to find out that they not only owe taxes, but also underpayment penalties. To ease the burden on taxpayers, the Internal Revenue Service (IRS) has advised that penalty relief may be available.
Here’s what happened. The Tax Cuts and Jobs Act (TCJA) introduced many changes beginning in 2018, including caps on state and local tax deductions, a zeroed-out personal exemption amount, and the elimination of reimbursed job expenses. Additionally, since Congress passed the law in December of 2017, new withholding tables were not available to employers until mid-January, and some employees didn’t see a switch in withholding until mid-February. (You can see the withholding tables here and find out more about updating your form W-4 here.)
The combination of new rules, new withholding tables, and even new tax forms has been confusing, leading some tax professionals, including the American Institute of CPAs (AICPA), to call for relief from IRS. (You can read the letter from the AICPA, which downloads as a pdf, here.) The result? The IRS has advised that they will waive underpayment penalties (tax geeks will recognize these as section 6654 penalties) so long as withholding and estimated tax payments total at least 85% percent of the tax shown on the return for the 2018 taxable year. Read more
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