IRS Automatically Waiving 2018 Estimated Tax Penalty for More Than 400,000 Filers

(Parker Tax Publishing August 2019)

The IRS announced that it is automatically waiving the estimated tax penalty for the more than 400,000 eligible taxpayers who already filed their 2018 federal income tax returns but did not claim the waiver. According to the IRS, this waiver will be applied to tax accounts of all eligible taxpayers so there is no need to contact the IRS to apply for or request the waiver. IR-2019-144.

Background

Generally, an underpayment of estimated tax penalty will apply when a taxpayer does not make the required amount of estimated tax payments. One of the safe harbors that prevents the assessment of such a penalty is if the taxpayer paid estimated payments equal to 90 percent of the tax due for the year. Earlier this year, in Notice 2019-25, the IRS lowered the usual 90 percent penalty threshold to 80 percent to help taxpayers whose withholding and estimated tax payments fell short of their total 2018 tax liability. The IRS also removed the requirement that estimated tax payments be made in four equal installments, as long as they were all made by Jan. 15, 2019.

In mid-August, the IRS announced that an automatic waiver will apply to any individual taxpayer who paid at least 80 percent of their total tax liability through federal income tax withholding or quarterly estimated tax payments but did not claim the special waiver available to them when they filed their 2018 return earlier this year.

According to the IRS, this step is being taken to provide relief to any person who filed too early to take advantage of the waiver or was unaware of it when they filed.

IRS Will Automatically Send Refunds to Eligible Taxpayers Who Qualify for Penalty Relief

Over the next few months, the IRS will mail copies of notices CP21 granting this estimated tax penalty relief to affected taxpayers. Any eligible taxpayer who already paid the penalty will also receive a refund check about three weeks after their CP21 notice regardless if they requested penalty relief or not. The IRS emphasized that eligible taxpayers who have already filed a 2018 return do not need to request penalty relief, contact the IRS or take any other action to receive this relief.

For those yet to file, the IRS is urging every eligible taxpayer to claim the waiver on their return. This includes those with tax-filing extensions due to run out on October 15, 2019. According to the IRS, the quickest and easiest way is to file electronically and take advantage of the waiver computation built into tax software packages. The IRS said that, for those who choose to file on paper, they can fill out Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, and attach it to their 2018 return.

For a discussion of the penalty for underpayment of estimated taxes, see Parker Tax ¶262,110.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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