In an Information Release and Notice, IRS has expanded the estimated tax penalty waiver that it previously announced in Notice 2019-11 (see IRS provides penalty relief for underpayment of 2018 estimated individual taxes). The waiver now applies to taxpayers whose total withholding and estimated tax payments are 80% or more of their 2018 taxes-down from 85%. The notice also updates procedures for requesting the waiver and provides procedures for taxpayers who have already paid underpayment penalties but who now qualify for relief to request a refund.
The Tax Cuts and Jobs Act (TCJA) was a comprehensive tax overhaul that dramatically changed the rules governing the taxation of individuals for tax years beginning before 2026, providing new income tax rates and brackets, increasing the standard deduction, suspending personal exemptions, increasing the child tax credit, limiting the state and local tax deduction, and temporarily reducing the medical expense threshold, among many other changes. TCJA also provides a new deduction for non-corporate taxpayers with qualified business income from pass-throughs.
Many of the TCJA’s changes impacted withholding. A Government Accountability Office (GAO) report estimated that nearly 30 million taxpayers could be underwithheld in 2018.
Initial relief. In response to expressions of concern by members of Congress and other groups about withholding difficulties, IRS provided in Notice 2019-11 that the estimated tax penalty under Code Sec. 6654 for the 2018 tax year was waived for individuals whose total withholding and estimated tax payments made by Jan. 15, 2019, equaled or exceed 85% of the tax shown on their 2018 returns.
This relief is designed to help taxpayers who were unable to properly adjust their withholding and estimated tax payments to reflect an array of changes under the TCJA. A taxpayer who paid less than 85% was not eligible for the waiver, and his penalty was to be calculated using the usual 90% threshold.
Expanded relief. Notice 2019-25, which modifies and supersedes Notice 2019-11, increases the availability of the underpayment penalty waiver by expanding it to individuals whose total withholding and estimated tax payments equal or exceed 80% of the tax shown on their 2018 return. IRS notes that this waiver is in addition to any other exception that Code Sec. 6654 provides to the underpayment of estimated income tax, such as owing only a de minimis amount of estimated tax.
Notice 2019-11 also updates procedures for requesting the waiver, and provides procedures for taxpayers who have already paid underpayment penalties but who now qualify for relief to request a refund.