More than 400,000 eligible taxpayers whose withholding and estimated tax payments fell short of their total 2018 tax liability will have the estimated tax penalty automatically waived or refunded (if they already paid the penalty) on 2018 returns filed with the IRS.
Eligible taxpayers who have already filed a 2018 return do not need to request penalty relief, contact the IRS or take any other action to receive this relief.
The automatic waiver applies to any individual taxpayer who paid at least 80 percent of their total tax liability through federal income tax withholding or quarterly estimated tax payments but did not claim the special waiver available to them when they filed their 2018 return earlier this year. While some taxpayers were unaware of the waiver, others filed their returns too early to take advantage of it.
Earlier this year, the IRS lowered the usual 90 percent penalty threshold to 80 percent to assist taxpayers whose withholding and estimated tax payments fell short of their total 2018 tax liability. The IRS also removed the requirement that estimated tax payments be made in four equal installments, as long as all of the estimated tax payments were made by January 15, 2019. In addition, the 90 percent threshold was initially lowered to 85 percent on January 16 and further lowered to 80 percent on March 22.
Over the next few months, affected taxpayers will receive copies of CP 21 notices in the mail granting them penalty relief. Furthermore, any eligible taxpayer who already paid the penalty will receive a refund check about three weeks after their CP21 notice regardless if they requested penalty relief.
If you haven’t filed a 2018 return yet, for example, if you have an extension until October 15, 2019, you should claim the waiver on your return when you do file. The fastest and easiest way is to file your return electronically. You may also file a paper return and claim the waiver by filling out Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts, and attaching it to your 2018 return.
If you have any questions about the estimated tax penalty waiver or estimated taxes, don’t hesitate to call.