Articles

IRS Waives Penalties for Underpayments of 2018 Federal Tax Liabilities by Jeffrey M. Mutnik, CPA/PFS

Posted on January 30, 2019

The IRS is providing penalty relief to the millions of taxpayers it says may have fallen short of their total tax liabilities for 2018 due to the revamp of the U.S. tax code under the Tax Cuts and Jobs Act (TCJA).

Thanks, in part, to the efforts of the accounting profession, including of the American Institute of CPAs (AICPA), the IRS recognizes that many individual taxpayers may not have properly adjusted their withholding and estimated tax payments to reflect the provisions of the new law. As a result, taxpayers who paid at least 85 percent of their total tax liabilities for last year through withholding and/or estimated tax payments can avoid underpayment penalties. Typically, a penalty waiver requires taxpayers to have paid 90 percent of their tax liabilities during the tax year.

U.S. taxes are based on a pay-as-you-go system for which individual taxpayers are required by law to pay most of their tax obligations during the year, either by having federal taxes withheld from their paychecks or by making quarterly estimated tax payments directly to the IRS. While the federal tax withholding tables released by the IRS in early 2018 reflected the lower tax rates and higher standard deductions under the TCJA law, they did not consider all of the changes brought about the new law. Despite efforts by the IRS and CPAs to encourage taxpayers to get a paycheck checkup and confirm that they had enough taxes withheld from their paychecks, many taxpayers did not submit revised W-4 withholding forms to their employers or increase their estimated tax payments.

According to the IRS, many taxpayers filing their 2018 will be surprised to learn they owe additional taxes to the federal government. To avoid an unexpected tax bill in future years, taxpayers should meet with their advisors and accountants during the first half of 2019 to confirm the accuracy of their estimated tax payments and to check the withholding on their most recent paychecks to ensure they are having enough tax withheld from their wages based on their filing status, number of dependents and other factors.

About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director with the Taxation and Financial Services practice of Berkowitz Pollack Brant Advisors and Accountants, where he provides tax and estate-planning counsel to high-net-worth families, closely held businesses and professional services firms. He can be reached in the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via email at info@bpbcpa.com.