The IRS has waived the underpayment penalty for some taxpayers whose withholding or estimated tax payments resulted in an underpayment for the 2018 tax year. If you qualify, you should complete Form 2210 and submit it along with your tax return to receive the penalty waiver.
Tax Reform May Have Caused Underpayments
The major tax reform that took effect in 2018 included lower tax rates and an increased standard deduction. As a result, many taxpayers had less tax withheld from their paychecks throughout the year.
However, other changes could offset these tax breaks or even result in a higher tax liability in some cases. Dependency exemptions were eliminated, some itemized deductions were reduced or eliminated, and the deduction for alimony was also removed from the tax code.
Taxpayers who were impacted by these other changes may end up owing when they file their returns. Because taxpayers didn’t know what to expect due to the new tax laws, the IRS is providing a break to some taxpayers by lowering the safe-harbor amount to 85% of the total tax liability for the year, instead of the usual 90% threshold.
Tax Underpayment Safe Harbors
The IRS offers a number of safe harbors that allow a taxpayer to avoid underpayment penalties, including the following:
- Taxpayers who less than $1,000 in tax for the entire tax year.
- Taxpayers who had no tax liability for the prior tax year.
- Taxpayers who pay an amount equal to at least 100% of their tax liability from the previous year.
- Taxpayers who pay an amount equal to at least 90% of their tax liability for the current year.
The last safe harbor has been temporarily adjusted to 85%. You won’t need to request penalty abatement—-you just need to file Form 2210 along with your tax return.
Unfortunately, taxpayers who paid less than 85% of their total tax liability won’t receive a break. Their underpayment penalties will be calculated based on the normal 90% safe-harbor rules.
Review Your Withholdings
This tax penalty waiver only applies to the 2018 tax year. By next year, taxpayers should have a better understanding of the new tax laws and how much they should have withheld from their paychecks.
If you haven’t reviewed your W-4 form or estimated tax payment calculations, do so now to avoid penalties when you file your taxes next year.
The Gartzman Law Firm offers tax settlement help for both federal and state tax debt. Use our contact form to request a consultation with an Atlanta tax resolution attorney.