IRS giving millions a pass on penalties for 2018 underpayment

The IRS once again is making it easier on taxpayers facing unexpected penalties following implementation of the Tax Cuts and Jobs Act.

Individuals who failed to pay a certain percentage of their federal tax bill throughout the year are subject to an underpayment penalty when they file. On Friday, the agency said it is lowering that threshold to 80 percent of what they owe, after previously reducing the figure to 85 percent in January. The move is expected to provide relief to an additional 15 percent of all taxpayers and applies only to tax year 2018.

Before the tax code overhaul, anywhere from 10 million to 12 million taxpayers found themselves facing a penalty, said a senior Treasury official. In 2017, the total amount collected was $1.6 billion in penalites.

Normally, in order to avoid a penalty for underpayment, you have to pay at least 90 percent of what you owe for the tax year in question or 100 percent of the tax liability from the prior year (or 110 percent if your adjusted gross income on that year’s return exceeded $150,000).

The IRS has been reminding taxpayers to review their W-4s, to ensure they are withholding sufficient taxes from their pay.

That’s because the Treasury Department and the IRS updated their withholding tables in early 2018 to reflect the changes from the new tax law. The overhaul of the tax code slashed individual income tax rates, doubled the standard deduction and eliminated personal exemptions.

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