On Friday, March 22, 2019, the Treasury and IRS announced they have lowered the withholding underpayment penalty threshold to 80%. This means that taxpayers who were 80% or less under-withheld on their income tax withholding or quarterly tax payments may qualify for relief.Earlier this year, the US Treasury lowered the threshold from 90% to 85% when it was revealed that a significant number of taxpayers were subject to the penalties. The move to further lower the threshold was made after lawmakers expressed concerns over the impact on middle-income families and encouraged the IRS to lower or waive the penalties.
The issue of under-withholding arose, in part, because of the IRS’s 2018 reflected changes to the decrease in income tax rates. But they failed to account for other changes brought about by the Tax Cuts and Jobs Act.
The IRS is urging taxpayers to use their online withholding calculator and update their W-4 to ensure they are not under-withheld moving forward. The IRS will be issuing additional guidance on relief for under-withholding and underpayment of estimates as well as a new Form 2210.
Taxpayers who were 80% under-withheld or less and have already paid the penalties will be able to file IRS Form 843, “Claim for Refund and Request for Abatement”. On line 7 of the form include the statement “80% Waiver of estimated tax penalty”. Leave lines 5a and 5b of the form blank.
Also note – Form 843 cannot be filed electronically.
If you need assistance determining if you qualify for penalty relief, or need help filing your Form 843, please contact us.