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Treasury expands penalty relief to more taxpayers

The Treasury Department announced Friday that it will provide penalty relief to more taxpayers who didn’t have enough taxes withheld from their paychecks in 2018 after pressure from lawmakers on both sides of the aisle to do so.

The department announced that it will waive penalties for people who paid at least 80 percent of their tax liability during the year through withholding or estimated tax payments.

The usual threshold is 90 percent. The IRS said in January that it would lower the threshold to 85 percent and is now lowering it even further.

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“I appreciate the bipartisan interest from members of Congress on this issue and agree that further relief should be provided to taxpayers,” Treasury Secretary Steven MnuchinSteven MnuchinDemocrats justified in filibustering GOP, says Schumer Yellen provides signature for paper currency Biden's name will not appear on stimulus checks, White House says MORE said in a statement. “Treasury is exempting even more taxpayers from the usual underpayment penalties in an effort to help those who attempted in good faith to meet their withholding obligations.”

This year is the first time that people are filing their taxes under the tax-cut law President TrumpDonald TrumpThe Memo: The Obamas unbound, on race Iran says onus is on US to rejoin nuclear deal on third anniversary of withdrawal Assaults on Roe v Wade increasing MORE signed in late 2017. Shortly after the law was enacted, the IRS released guidance on the amount of taxes withheld from people’s paychecks that reflected major provisions in the measure.

Most people got a tax cut for 2018 and saw bigger paychecks throughout the year due to the withholding guidance. But the withholding guidance didn’t take into account every tax-code change made by the 2017 law, so some taxpayers were withholding less during the year and now have to pay the IRS money when they file their taxes this year instead of getting a refund.

Treasury estimated last year that several million more taxpayers would have a balance due to the IRS as a result of the new withholding guidance. The agencies have encouraged taxpayers to utilize the IRS’s online withholding calculator and submit new forms to their employers if it’s necessary to adjust their withholding. However, many taxpayers have not done so.

The IRS announced some penalty relief in January. But lawmakers on both sides of the aisle, taxpayer-rights advocates and the American Institute of Certified Public Accountants had argued that the agency should go even further.

At a House Ways and Means Committee hearing last week, Reps. Kenny MarchantKenny Ewell MarchantRepublican Van Duyne wins race for Texas House seat Cook Political Report shifts 8 more House races toward Democrats Democrats seek wave to bolster House majority MORE (R-Texas) and Judy ChuJudy May ChuHouse to consider anti-Asian hate crimes bill, protections for pregnant workers this month Padilla introduces bill to expand California public lands Democrats praise Biden for recognizing Armenian genocide MORE (D-Calif.) both urged Mnuchin to waive penalties for taxpayers who paid at least 80 percent of their 2018 tax liability last year, arguing that there has been some confusion by taxpayers about the new tax law and withholding guidance. Mnuchin said that he would promptly look into the matter, leading to Friday’s announcement.

A senior Treasury official said that in total, the penalty relief the department announced Friday and in January is expected to help at least 25 to 30 percent of taxpayers who otherwise would have had to pay underpayment penalties.

In 2017, there were about 10 million to 12 million taxpayers who had underpayment penalties totaling about $1.6 billion. The senior Treasury official said that it’s difficult to estimate any increase in the number of taxpayers who would have owed penalties this year if not for the relief because employees file their withholding forms with their employers, rather than with the IRS.

The official said that forms and instructions relating to the additional penalty waiver will be posted on the IRS’s website no later than Monday and that the change is expected to be reflected in tax-preparation software within the next week. Taxpayers who have already paid penalties but are eligible for the new relief will be able to file for a refund.

Treasury urged people to check their tax withholding for 2019, particularly if they unexpectedly owed money to the IRS this year.

Lawmakers said they were pleased with Treasury's announcement.

“The Trump administration is taking a step to undo the harm the Republican tax law inflicted on millions of families whose taxes were under-withheld through no fault of their own," said Sen. Ron WydenRonald (Ron) Lee WydenBad jobs report amplifies GOP cries to end 0 benefits boost Putting a price on privacy: Ending police data purchases Overnight Health Care: Biden sets goal of at least one shot to 70 percent of adults by July 4 | White House to shift how it distributes unallocated vaccines to states MORE (Ore.), the top Democrat on the Senate Finance Committee.

"Piling penalties on top of unexpectedly high tax bills while corporations and the wealthy reap a windfall would have been a slap in the face. It shouldn’t have taken nearly three months to provide additional relief to families facing financial anxiety, but I’m pleased the administration has taken the action we requested,” he added.

Finance Committee Chairman Chuck GrassleyChuck GrassleyGrassley asks Blinken to provide potential conflicts involving John Kerry Overnight Defense: Gillibrand makes new push for military sexual assault reform | US troops begin leaving Afghanistan | Biden budget delay pushes back annual defense policy bill Gillibrand makes new push for military sexual assault reform MORE (R-Iowa) also was positive about the additional penalty relief, saying the IRS did a "laudable job" in updating the withholding tables last year but that no withholding guidance would be accurate for everyone.

"This further relief for taxpayers is welcome news for taxpayers who weren’t fully prepared and may have been inadvertently under-withheld due to the significant changes made to the tax code following legislative reforms in the last Congress," he said.

Some Democrats have alleged that Treasury in early 2018 manipulated the withholding tables for political purposes, so that people would see bigger paychecks ahead of the midterm elections even if they then had a balance due to the IRS when they filed their taxes this spring.

The Treasury Department has argued that they did not adjust the withholding guidance for political reasons.

Updated at 1:52 p.m.