The Internal Revenue Service (IRS) recently announced that it will waive the estimated tax underpayment penalty for many taxpayers who did not have sufficient withholding in 2018. The penalty waiver usually applies to taxpayers who paid at least 90 percent of their total liability through estimated payments or federal income tax withholding, but for 2018, this threshold will be lowered to 85 percent.
The Tax Cuts and Jobs Act of 2017 brought many changes to the federal tax system, including lower tax rates and increased standard deductions that meant many taxpayers could have less tax withheld from their paychecks in 2018. However, the updated federal withholding tables could not factor in other changes, such as reduced itemized deductions, that may have increased withholding requirements for certain taxpayers.
“We realize there were many changes that affected people last year, and this penalty waiver will help taxpayers who inadvertently didn’t have enough tax withheld,” said IRS Commissioner Chuck Rettig. “We urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019.”
Additional details on this waiver are available here [PDF].