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Tax Day is two and a half weeks away, and if you’ve already filed you may be surprised about the final numbers.
There are new tax rates and brackets and an increased standard deduction under the new law, resulting in big changes for some taxpayers. Some owe lower taxes, while others have an unexpectedly higher tax bill, which could mean underpayment penalties.
If you’re in the second camp of taxpayers, there is some relief for you.
In January, the IRS said it would waive the tax penalty for taxpayers 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 threshold is 90 percent to avoid a penalty.
The penalty is an interest-based amount approximately equivalent to the federal interest on the amount not paid in a timely manner.
To help even more taxpayers who didn’t have enough tax withheld, the IRS announced last week it would now waive the penalty for people who paid at least 80 percent of what they owed.
The revised waiver percentage will be integrated into commercially-available tax software and reflected in a revision of the instructions for Form 2210, “Underpayment of Estimated Tax by Individuals, Estates, and Trusts."
If you already filed your 2018 tax return and now qualify for the expanded relief, you need to file IRS Form 843, “Claim for Refund and Request for Abatement.” On line 7, include a statement that says “80 percent waiver of estimated tax penalty.” The form cannot be filed electronically and must be mailed.
Paycheck Checkup
The best way to avoid unpleasant surprises next filing season is to take a Paycheck Checkup and review. This is especially important for those who made withholding adjustments in 2018 or had a major life change to ensure the right tax is still being withheld. Those most at risk of having too little tax withheld from their pay include taxpayers who itemized in the past but now take the increased standard deduction, as well as two-wage-earner households, employees with nonwage sources of income and those with complex tax situations.
Taking this step today can lead to smoother filing seasons.