Here is what
the IRS had to say in yesterday’s IR-2019-03 (highlight is mine) -
“The Internal Revenue Service announced today
that it is waiving the estimated tax penalty for many taxpayers whose 2018
federal income tax withholding and estimated tax payments fell short of their
total tax liability for the year.
The IRS is generally waiving 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. The usual
percentage threshold is 90 percent to avoid a penalty.”
This move is in response to the fact that the new withholding tables for 2018, created to reflect the changes made by the GOP Tax Act, were, as I suspected, a bit too "liberal", to make taxpayers think the Act was putting more money in their pockets than it actually was, and the fact that most taxpayers did not properly revise their withholding to properly cover the substantial changes made to deductions and the elimination of the personal exemption deduction.
When
I first saw the headline, I was excited.
But not after reading the 2nd paragraph. While reducing the penalty threshold from 90%
to 85% is a good and welcomed action, and will provide some relief to applicable
taxpayers, some of my clients included, it is not a big deal. I would have liked more.
Taxpayers
still have two other ways to avoid or reduce penalties for underpayment of federal
estimated taxes –
*
if the 2018 payments, via withholding and/or estimated payments, is 100% of the
2017 tax liability (110% if the 2017 AGI was over $150,000 or $75,000 if Married
Filing Separately), and
*
“annualizing” income and deductions for the year to determine the specific tax
liability for each of the 4 estimated tax periods and applying actual payments
made for each period.
TTFN
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