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IRS expands underpayment and underwithholding relief

The Treasury Department and the Internal Revenue Service said Friday they are lowering the withholding underpayment threshold to 80 percent to give more taxpayers relief from tax penalties if they didn’t withhold enough taxes from their paychecks last year in the wake of the Tax Cuts and Jobs Act.

The change applies to taxpayers whose total withholding and estimated tax payments for 2018 are equal to or greater than 80 percent of their taxes owed. The usual threshold for avoiding a tax penalty is 90 percent, but earlier this year the Treasury agreed to reduce the threshold to 85 percent. The Treasury and the IRS came under pressure from lawmakers to either waive the tax penalty for underwithholding entirely this year or lower it to 80 percent.

The revised waiver computation will be integrated into commercially available tax software and reflected in an upcoming revision of the instructions for Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts. Taxpayers who have already filed for tax year 2018 but qualify for the expanded relief will be able to claim a refund by filing Form 843, Claim for Refund and Request for Abatement and include the statement “80% Waiver of estimated tax penalty” on Line 7. The form cannot be filed electronically.

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