Did you owe an estimated tax penalty for 2018 but didn’t claim the waiver? All is not lost. The Internal Revenue Service (IRS) has announced that it is waiving the estimated tax penalty for those eligible taxpayers who filed their 2018 federal income tax returns but did not claim the waiver. The relief is expected to impact more than 400,000 taxpayers.
You already know that the Tax Cuts and Jobs Act (TCJA) made significant changes to individual taxes, including cutting tax rates, tweaking itemized deductions normally claimed on a Schedule A, and eliminating personal exemptions. As a result, the withholding schemes were not adequate for many taxpayers in 2018, causing the General Accounting Office (GAO) to warn that unless adjustments were made to withholding, some taxpayers might owe more in 2019. That turned out to be true and early in the year, the IRS announced that penalty relief might be available to some taxpayers. In March of 2019, the IRS expanded the relief to include those taxpayers making payments of at least 80% of the tax shown on the return for the 2018 taxable year. (You can find more from Forbes’ Ashlea Ebeling here).
Unfortunately, not everyone got the memo. So, the IRS is now tweaking the process with an automatic waiver: The automatic waiver applies to any individual taxpayer who paid at least 80% of their total tax liability through federal income tax withholding or quarterly estimated tax payments but did not claim the special waiver available to them when they filed their 2018 return earlier this year. The IRS will apply this waiver to tax accounts of all eligible taxpayers, so there is no need to contact the IRS to apply for or request the waiver.
“The IRS is taking this step to help affected taxpayers,” said IRS Commissioner Chuck Rettig. “This waiver is designed to provide relief to any person who filed too early to take advantage of the waiver or was unaware of it when they filed.”
The IRS has confirmed that, over the next few months, the agency will be sending letters to affected taxpayers. Taxpayers who are eligible for relief will receive a CP 21 notice.
So what if you’ve already paid the penalty? You may be entitled to a refund. Refunds for eligible taxpayers will be mailed about three weeks after the CP 21 notice.
If you haven’t filed your 2018 tax return yet, the IRS urges you to claim the waiver when you file. This includes those (like me) with extensions to file through October 15, 2019. The penalty waiver should appear automatically if you use a tax software package. If you choose to file on paper, you’ll need to fill out form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts (downloads as a PDF), and attach it to your 2018 return.
To avoid surprises next year, the IRS has launched a new Tax Withholding Estimator that they hope will make it easier for everyone to figure the right amount of tax withheld during the year. You can find out more here.