United States taxpayers who failed to pay a specific percentage of their federal tax bill this season may find themselves owing an underpayment penalty. Fortunately, the Internal Revenue Service has made it somewhat easier on these taxpayers by giving certain filers a pass on the penalty. The agency stated on Friday that they are lowering the threshold for filers who were subjected to unexpected penalties after the Tax Cuts and Jobs Act was implemented last year. Specifically, the threshold has been lowered to 80 percent of what the filer originally owed.
The lower threshold only applies to the 2018 tax year, but is expected to give relief to an additional 15 percent of filers. Under normal circumstances, in order to avoid an underpayment penalty, one must pay at least 90 percent of what he or she owed, or 110 percent, if the person’s adjusted gross income exceeded $150,000 on that year’s return.
Even those who have already paid the penalty may be eligible for a refund by completing form 843 and mailing it to the Internal Revenue Service. This form cannot be filled out or submitted online.
Taxpayers are frequently reminded by IRS employees to regularly review their W-4s, to ensure that appropriate taxes are being withheld from their paychecks. Some taxpayers may find their W-4’s must be modified, based on updated withholding tables that reflect changes from the tax overhaul in early 2018. This new tax code eliminated personal exemptions, doubled the standard deduction, and slashed individual income tax rates. The withholding tables act as guidelines for employers, who must deduct the proper amount of income tax from employees’ paychecks.
IRS Commissioner, Chuck Rettig, stated that the adjustment was made to respond to this year’s unique scenario and the subsequent concerns of many people in the tax community. The Commissioner also urged individuals to check their with holdings for the new tax year so that they do not find themselves in the same situation the next time they file a return.
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