In a recent letter addressed to IRS Commissioner Charles Rettig, Senator Ron Wyden, D-Ore., the Senate Finance Committee’s leading Democrat has shown himself to be for the people by asking the IRS to waive all under-withholding tax bills for this year’s taxes.
In the wake of the widespread and confusing Tax Cuts and Jobs Act passed December, 2017, the letter was prompted by statistics showing an estimated 30 million taxpayers expected to accidentally under-withhold on their tax returns.
“As you know, the 2017 tax law upended middle-class tax benefits even while promising households a massive tax refund,” Wyden writes. “While the tax law expanded the Child Tax Credit and standard deduction, it also repealed personal exemptions and many itemized deductions and capped the state and local income tax deduction at $10,000. Republicans also rushed their tax bill’s implementation, insisting on a start year of 2018 for a bill they had barely completed at the end of 2017. As a result, Treasury had to jury-rig the current withholding allowance instead of properly revising the W-4 so that employees could update the number of allowances they claim with their employers.”
The IRS’s fix for this in the way of a withholding calculator featured on their website, however, Wyden added, had done little to solve the problem.
“Treasury Secretary [Steven] Mnuchin and your predecessor, Acting Commissioner [David] Kautter, proposed that taxpayers use the new IRS tax calculator to determine whether they were being under-withheld by Trump’s tax law,” the letter to Rettig reads.
“However, according to a recent IRS Information Reporting Program Advisory Committee report, it does not sound like most taxpayers actually visited the IRS website and clicked through all the complicated steps. The IRPAC report consequently warns that Treasury’s makeshift W-4 combined with few successful taxpayer visits to the IRS calculator ‘may cause a significant number of taxpayers to be under-withheld when they file their 2018 personal income tax returns.’”
The way Wyden saw it, it’s “unavoidable that millions of taxpayers who are expecting critical tax refunds will instead owe taxes when they start to fill out their returns in a few short weeks,” and “….while the IRS cannot spare taxpayers who have been under-withheld from paying what is due, IRPAC recommends the IRS waive under-withholding penalties on taxpayers for this filing season so as not to add insult to injury.”
The IRS, in fact, did issue a waiver which lowers the 90% threshold to 85% — meaning they won’t penalize taxpayers who paid at least 85% of their total 2018 tax liability. For those who paid less than 85%, the IRS will calculate the penalty as it normally would.
To request the waiver, a taxpayer must file Form 2210, “Underpayment of Estimated Tax by Individuals, Estates, and Trusts,” with his or her 2018 federal income tax return.
The underpayment penalty waiver is effective only for 2018. The IRS is urging taxpayers to review their withholding now to ensure that the proper amount is withheld for 2019, especially taxpayers who end up owing more than expected this year.