The Senate’s top Democratic tax writer is calling on the IRS and Treasury to further waive underpayment penalties for the 2018 tax year. Nearly 30 million taxpayers are expected to have underpaid taxes last year, according to the Government Accountability Office (GAO).
IRS Underpayment Penalty
The IRS announced in IRS News Release IR-2019-03 that it would waive the underpayment penalty for any taxpayer who paid at least 85 percent of their total tax liability during the 2018 tax year. The usual threshold is 90 percent. However, Senate Finance Committee (SFC) ranking member Ron Wyden, D-Ore., has said that the IRS should “do more.”
“Instead of penalizing those who paid less than 90 percent of what they owed in 2018, now they’re penalizing those who paid less than 85 percent,” Wyden said on February 7 from the Senate floor. “That was one small step in the right direction,” he added.
Before the IRS’s January 16 news release, Wyden wrote to Treasury and the IRS urging the waiver of underpayment penalties related to TCJA-related withholding errors. Although the IRS did lower the penalty threshold for the 2018 tax year, Wyden stated on February 7 that “nobody should be penalized for the Trump administration’s mistakes on tax withholding.”
Democrats are largely opposed to the Tax Cuts and Jobs Act (TCJA) (P.L. 115-97) as a whole and claim that Republicans’ tax code overhaul was rushed. Thus, significant tax withholding errors and underpayments are expected to be incurred. “Change the penalty thresholds. Extend safe harbors. Whatever needs to happen,” Wyden said.
Additionally, several Republicans have also voiced their concern about the expected increase for the 2018 tax year in underpayments related to withholding. Indeed, SFC Chairman Chuck Grassley, R-Iowa, too, recently urged the IRS to be “lenient” on underpayment penalties for 2018, as it is the first tax year since tax reform implementation.
Likewise, the American Institute of CPAs (AICPA) has urged Treasury and the IRS to provide taxpayers more extensive penalty relief. “The substantial uncertainty surrounding the implementation of the TCJA and the updated federal tax withholding tables presented a challenge for many taxpayers in understanding and accounting for their tax liability,” Annette Nellen, chair of the AICPA’s Tax Executive Committee said in a recent letter to Treasury and the IRS. The AICPA has recommended an 80 percent threshold for the underpayment penalty waiver.
By Jessica Jeane, Senior News Editor