How Recent IRS Penalty Changes Affect Your Tax Return
The Tax Cuts and Employment Act of 2017 changed a number of things in the tax code, including the question of how much some people should withhold from their salaries. Lifehacker has issued a few warnings to adjust your 2018 withholdings so you don’t face an under-withholding penalty this tax season, but if you haven’t, there is less cause for concern: The IRS announced last week that it is waiving the some cases.
Last year, the agency asked taxpayers to update their withholdings to make sure they comply with new tax laws. But now, the IRS has said it “routinely waives the penalty for any taxpayer who paid at least 85 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments, or a combination of the two” due to some confusion … caused by the new law. Usually the standard is 90 percent.
“A taxpayer will not be required to pay a fine if he paid at least 85 percent of his tax liabilities for 2018,” the agency notes. “If the taxpayer paid less than 85 percent, then he is not eligible for a waiver and the penalty will be calculated as usual using the 90 percent threshold.”
Since tax rates under the new law tend to be lower and the standard deduction is higher, taxpayers would see more money on their paychecks last year than they did last year. But, as the IRS explains, these deductions could not account for some other changes, such as a reduction in itemized deductions . “As a result, some taxpayers may have paid too little taxes during the year if they had not properly submitted a revised W-4 withholding form to their employer or increased their estimated tax payments.”
“We understand that there have been many changes that have affected people in the past year, and this waiving of penalties will help taxpayers who inadvertently failed to withhold enough tax,” IRS Commissioner Chuck Rettig said in a statement. “We urge people to re-check their withholdings this year to make sure they have the correct 2019 withholding tax amount.”
To adjust your withholdings for the next tax season, use the IRS Withholding Calculator .