IRS automatically waiving underpayment penalties for more than 400,000 taxpayers

IRS automatically waiving underpayment penalties for more than 400,000 taxpayers
© Greg Nash

The Internal Revenue Service announced Wednesday that it is automatically waiving underpayment penalties for more than 400,000 people who filed their taxes this year.

The announcement comes after the agency said earlier this year that it would provide penalty relief for taxpayers as they adjusted to President TrumpDonald John TrumpLawmakers release defense bill with parental leave-for-Space-Force deal House Democrats expected to unveil articles of impeachment Tuesday Houston police chief excoriates McConnell, Cornyn and Cruz on gun violence MORE's 2017 tax-cut law.

The move will help people who were entitled to penalty waivers but didn't claim them. The IRS said it will provide the waivers to all eligible taxpayers and that there is no need for taxpayers to contact the agency to request the relief. 

“The IRS is taking this step to help affected taxpayers,” IRS Commissioner Charles Rettig said in a news release. “This waiver is designed to provide relief to any person who filed too early to take advantage of the waiver or was unaware of it when they filed.”

ADVERTISEMENT

This year's 2018 tax returns are the first to reflect the 2017 tax law. The law made a number of changes to the tax code, including lower rates, a larger standard deduction and limits to or the elimination of other deductions.

Shortly after the 2017 law was enacted, the IRS released new guidance that updated the amount of taxes withheld from people's paychecks in light of the new law.

While most people got a tax cut for 2018 and saw bigger paychecks during the year, the withholding guidance didn't take into account every tax-code change made by Trump's law. As a result, some taxpayers who typically receive refunds did not have enough in taxes withheld last year and unexpectedly owed money to the IRS when they filed their returns this year.

Typically, people do not have to pay penalties to the IRS if they paid at least 90 percent of their tax liability through withholding or estimated tax payments. In January, the IRS announced that it was lowering the threshold to 85 percent, and then in March, the agency expanded the relief and announced that the threshold would be lowered to 80 percent.

However, some taxpayers didn't know about the penalty relief and others may have filed their taxes before the IRS announced it, prompting the agency to move to waive the penalty automatically.

The IRS said that over the next few months, it will mail notices granting the relief to taxpayers. Taxpayers who previously paid the penalty will receive a refund check about three weeks after they received the notice, the agency said.

The IRS is encouraging taxpayers who unexpectedly had a balance due to the agency this year to use its online tool and update their tax withholding as necessary. The agency launched a revamped version of their withholding estimator last week.