IRS Lowers Estimated Tax Penalty Threshold for 2018

The IRS has announced that  it has given tax relief to many  taxpayers who were unable to properly adjust their withholding and estimated tax payments to reflect an array of changes under the Tax Cuts and Jobs Act (TCJA), the far-reaching tax reform law enacted in December 2017.

Usually, a estimated tax penalty applies at tax filing if too little is paid during the year. Therefore , you will be liable to a penalty  for 2018 if tax payments during the year did not met one of the following tests:

  • you did not pay or withheld tax at least 90 percent of the total tax liability for 2018 or
  • your  tax payments were less than 100 percent of the prior year’s tax liability, in this case from 2017. Please note that if your adjusted gross income is more than $150,000, or $75,000 if married and filing a separate return,the 100 percent threshold is increased to 110 percent .

Good news if that IRS has posted  Notice 2019-11, posted on 01/16/2019  by which it has waived the estimated tax penalty for many as the threshold of 90% is reduced to 85 %.This means that a taxpayer will not owe a estinated tax penalty if he/she paid at least 85 percent of their total 2018 tax liability. If the taxpayer paid less than 85 percent, then only  liable for penalty which will be computed , using the 90 percent threshold. 

IRS also informed that  ,  on-line Withholding Calculator on  IRS website is now fully updated and taxpayers are advised to use it to estimate and pay the tax for year 2019  and  get ready for the tax-filing season ahead. The waiver computation announced today will be integrated into commercially-available tax software and reflected in the forthcoming revision of Form 2210 and instructions.

Have you used this site’s estimated penalty calculator ?