The recent enactment of the Tax Cut and Jobs Act (TCJA) put many individual taxpayers in a difficult position regarding their estimated tax obligations for the 2018 tax year. Fortunately, the Internal Revenue Service (IRS) released Information Release and Notice (IR) 2019-55 expanding the guidance for penalty relief relating to the underpayment of individual income taxes relating to the 2018 tax year.
Pursuant to Internal Revenue Code (I.R.C.) § 6654, the IRS may impose a penalty on individuals who underpay their estimated tax obligations in a given tax year. To avoid that penalty, a taxpayer must make four equal installment payments to the IRS, totaling the lesser of the following:
- 90% of the tax shown on the individual’s tax return for that year, or,
- If the individual filed a valid return for the precedent year, 100% of the tax shown on that return, provided that individual had an adjusted gross income of less than $150,000.00. If that individual reported an adjusted gross income of more than $150,000.00, than 110% of the tax shown must have been remitted.
IR 2019-55 is meant to assist individual taxpayers who struggled with the complexity of the TCJA. As a result, if an individual’s withholding exceeded 80% of the tax shown on their 2018 income tax return, then that taxpayer may request a waiver confirming no penalties should be imposed pursuant to I.R.C. § 6654. To obtain said waiver, the individual taxpayer must file a Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, with their 2018 income tax return.
If an individual taxpayer fails to file the Form 2210, that taxpayer can seek relief via the more traditional route of preparing and submitting a Form 843, Claim for Refund and Request for Abatement. In completing the Form 843, the individual taxpayer should complete Line 7 with the following statement: 80% waiver of estimated tax penalty. For more information on submitting and negotiating a Form 843, please click here.
Lastly, the new penalty waiver for the 2018 tax year does not require four equal installment payments. Therefore, so long as the individual taxpayer met the 80% threshold via the final payment of estimated taxes on January 15, 2019, then they are eligible for the waiver.