Friday, August 16, 2019


The big tax news of the week is “IRS axes estimated tax penalties for 400,000 taxpayers”, as Michael Cohn reported at TAXPRO TODAY.

The announcement was made in IR-2019-144.

In his article Michael explains (highlights are mine) -

Earlier this year, in response to complaints from taxpayers who discovered they hadn’t withheld enough from their paychecks last year after passage of the 2017 tax overhaul and ended up with high tax bills, the IRS lowered the usual 90 percent penalty threshold to 80 percent to help taxpayers whose withholding and estimated tax payments fell short of their total 2018 tax liability. The agency also removed the requirement that estimated tax payments be made in four equal installments, as long as they were all made by Jan. 15, 2019.  The 90 percent threshold was initially lowered to 85 percent on Jan 16 and, after further complaints from lawmakers, it was lowered once more to 80 percent on March 22.

The IRS said it would apply the waiver automatically to the tax accounts of all eligible taxpayers, so there’s no need to contact the IRS to apply for or request the waiver. The automatic waiver will be given to any individual taxpayer who has paid at least 80 percent of their total tax liability through federal income tax withholding or quarterly estimated tax payments but didn’t claim the special waiver available to them when they filed their 2018 return earlier this year.”

Previous to this announcement, despite the changes to the policy for calculating the penalty for underpayment of estimated taxes, the IRS had been sending out notices to taxpayers assessing the penalty based on the previous 90% threshold and equal quarterly payment requirement.  The IRS has said that any taxpayer who had paid the erroneously calculated penalty will receive a refund check for the overpayment in a few months.  

Michael also explains –

For those taxpayers who haven’t filed their 2018 taxes yet, such as those who asked for an extension until Oct. 15, the IRS is urging every eligible taxpayer to claim the waiver on their tax return when they do file.”

The way to claim the waiver on a manually prepared return is by attaching IRS Form 2210 to the tax return.

This announcement reminds us that you should never automatically pay any penalty or balance due notice you have received from the IRS or a state tax agency.  In my experience over half, more like 2/3, of all such notices are wrong. 

Whenever you receive any correspondence about a tax return give it to your tax professional immediately.  If you “self-prepared” the return, manually or using a “box”, read the notice carefully and verify the calculation of any penalty.  Better yet, consult a tax professional.


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