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 Terner MnuchinTrump says he'll decide on foreign aid cuts within a week Democrats push judge for quick action on Trump tax returns lawsuit Five key players in Trump's trade battles 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 John Trump Former US ambassador: 'Denmark is not a big fan of Donald Trump and his politics' Senate Democrats push for arms control language in defense policy bill Detroit county sheriff endorses Booker for president 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 MarchantHouse conservatives call for ethics probe into Joaquin Castro tweet Texas faces turbulent political moment Democratic Party official: Texas is 'biggest battleground state in the country' MORE (R-Texas) and Judy ChuJudy May ChuLawmakers urge DNC to name Asian American debate moderator US must stay true to its values and fight the public charge rule Pelosi predicts Trump public charge rule will be 'swiftly challenged and defeated' 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 WydenWyden blasts FEC Republicans for blocking probe into NRA over possible Russia donations Wyden calls for end to political ad targeting on Facebook, Google Ex-CIA chief worries campaigns falling short on cybersecurity 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 GrassleyCharles (Chuck) Ernest GrassleyWhite House denies exploring payroll tax cut to offset worsening economy Schumer joins Pelosi in opposition to post-Brexit trade deal that risks Northern Ireland accord GOP senators call for Barr to release full results of Epstein investigation 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.