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Did you withhold less tax than last year? You may have to pay a penalty.


By Tony Carolla


Taxpayers face uncertainties regarding the effect that the Tax Cuts and Jobs Act will have on their 2018 return. The IRS has acknowledged this with the release of Notice 2019-11, Relief from Addition to Tax for Underpayment of Estimated Income Tax by an Individual.

To avoid an underpayment penalty prior to the 2018 tax year, an individual’s combined withholdings and estimated payments would need to be greater than or equal to the lesser of 90% of the current years tax or 100% of the preceding years tax. (110% if the individual’s adjusted gross income in the previous year exceeded $150,000). With the release of Notice 2019-11, the IRS has allowed a taxpayer to waive the underpayment penalty on those who have paid at least 85% of their tax liability by January 15, 2019.

This waiver is not automatically applied to your 2018 return. To request the waiver taxpayers must file Form 2210 – Underpayment of Estimated Tax by Individuals, Estates, and Trusts. Individuals will need to determine their eligibility for the waiver and if the waiver applies, check the waiver box and include the statement “85% Waiver” with the return.

While this waiver is good news for individuals, the AICPA has recommended that the IRS and Department of the Treasury do more to assist tax payers. On January 28, 2019 the AICPA made recommendations to lower the threshold of underpayment penalty relief to 80%, make the relief process automatic, establish a process to grant taxpayers penalty relief for reasonable cause, and extend the penalty relief to businesses and other entities.

The AICPA letter addressed concerns with taxpayers’ inability to accurately determine their tax liability due to the substantial uncertainties and lack of guidance. The AICPA explained that it could be unreasonably burdensome for taxpayers to rely on prior year tax liability in situations where there was a significant increase in prior year income. The AICPA also addressed the need to apply for penalty relief, and felt it more appropriate to have the relief granted automatically. The AICPA also recommended that a process for penalty relief be established for those who do not meet the requirements but have reasonable cause, and to extend the relief to all tax paying entities.


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