IRS Waives Penalty for Taxpayers with At Least 80% of Total Tax Liability in 2018

December 2, 2019

On Jan. 16, 2019, the IRS released news of a penalty waiver that may benefit taxpayers whose 2018 federal tax payments fell short of the usual 90 percent of tax liability threshold required to avoid the underestimated payment penalty. This waiver is offered to taxpayers who paid at least 80 percent* of their total tax liability during 2018 through federal income tax withholding, quarterly estimated tax payments, or a combination of the two. Taxpayers who paid less than 80 percent of their total tax liability will not be eligible for the waiver, and the penalty will be calculated normally using the 90 percent threshold.

The IRS designed this penalty relief to help taxpayers who were unable to properly adjust their withholding and estimated tax payments to reflect several changes enacted in December 2017 under the Tax Cuts and Jobs Act (TCJA). Updated federal tax withholding tables largely reflected the lower tax rates and increased the standard deduction brought about by the new law. As a result, many taxpayers had less tax withheld in 2018.

The IRS encourages all taxpayers to ensure the right amount of tax is withheld for 2019. To help taxpayers get their withholding right in 2019, an updated version of the agency’s online Withholding Calculator is now available on IRS.gov.

*In guidance issued on March 25, the IRS expanded the waiver of penalties to individuals who have paid in at least 80 percent of prior year federal tax through tax withholding or estimated tax payments (reduced from 85 percent in prior guidance).

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Mitchell Kopelman

Mitchell is the partner-in-charge of Aprio’s Tax practice as well as the Technology & Biosciences group. He has been a partner since 1990 with Aprio, which is the largest Georgia-based tax, accounting and consulting firm. Mitchell works with companies in the software, gaming, clean tech, financial technology (FinTech), health care IT, processing, biosciences (biotech and medical device) and manufacturing industries. Whether a company is pre-revenue, starting up, growing or preparing for a liquidity event, Mitchell works with them to maximize their potential at each stage. He is known for promoting research, innovation and entrepreneurship by enabling companies to be successful, regardless of where they are in their business lifecycle.

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