The changes enacted under the Tax Cuts and Jobs Act at the end of 2017 caused many taxpayers to struggle in meeting their 2018 federal income tax withholding obligations. Due to the “lateness” of that legislation and the complexity inherent in many of the new provisions contained in the new law, calculating proper federal income tax withholding taxes and estimated payments proved difficult. As a result, many taxpayers failed to meet the federal requirement to pay 90% of their tax by the end of the 2018 calendar year for withholdings and January 15, 2019, for those making estimated payments.
Earlier this year, the Internal Revenue Service expanded the penalty relief to individuals whose total withholding and estimated tax payments equaled or exceeded 80% of the tax shown on their 2018 returns.
Recently, the Internal Revenue Service announced that it will automatically apply this waiver to the more than 400,000 eligible taxpayers who have already filed their 2018 returns, but failed to claim the waiver. Relief is automatic, so there is no need to contact the agency to request the waiver. This should be good news to taxpayers.
For those yet to file, the IRS urges every eligible taxpayer to claim the waiver on their returns. This includes those with tax-filing extensions due to run out on Oct. 15, 2019
Over the next few months, the IRS will mail copies of notices CP21 granting this relief to affected taxpayers. Any eligible taxpayer who already paid the penalty will also receive a refund check about three weeks after their CP21 notice, regardless if they requested a waiver.
It is important to remember that this penalty relief is a single-year benefit and will not be available for tax years 2019 and forward.