IRS expands penalty waiver for those whose tax withholding and estimated tax payments fell short in 2018; key threshold lowered to 80%

Written on Apr 01, 2019

The IRS is providing additional expanded penalty relief to taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year.

The IRS is lowering to 80% the threshold required to qualify for this relief. Under the relief originally announced Jan. 16, the threshold was 85%. The usual percentage threshold is 90% to avoid a penalty.

This means that the IRS is now waiving the estimated tax penalty for any taxpayer who paid at least 80% of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two.

The revised waiver computation will be integrated into commercially-available tax software and reflected in the forthcoming revision of the instructions for Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts.

Taxpayers who have already filed for tax year 2018 but qualify for this expanded relief may claim a refund by filing Form 843, Claim for Refund and Request for Abatement and include the statement “80% Waiver of estimated tax penalty” on Line 7. This form cannot be filed electronically.

The expanded relief will help many taxpayers who owe tax when they file, including taxpayers who did not properly adjust their withholding and estimated tax payments to reflect an array of changes under the Tax Cuts and Jobs Act (TCJA), the far-reaching tax reform law enacted in December 2017.

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