New Penalty Relief from IRS

The IRS issued Notice 2019-11 earlier today, January 16, 2019.  The notice provides possible relief for some individual taxpayers who may have insufficient withholding due to the new tax law that was enacted on December 22, 2017.  In response to the new law, in January 2018, the IRS issued revised withholding tables that generally reduced the amount of withholding for federal income taxes during 2018.

In Notice 2019-11, the IRS provides a waiver to the penalty for underpayment of estimated taxes for eligible individual taxpayers.  To be eligible, a taxpayer’s 2018 federal withholding (and/or timely-paid 2018 estimated tax payments that were made on or before January 15, 2019) must equal or exceed 85% of the tax shown on the 2018 Form 1040.  (Usually, taxpayers must have payments that equal or exceed 90% of the tax shown on the return.)

Eligible taxpayers can request the waiver of the penalty on Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, by checking the waiver box (Part II, Box A) and including the statement “85% waiver” with the return.

If a taxpayer does not meet the condition for this special waiver, the taxpayer may still be eligible for the normal prior-year exception to the penalty for underpayment of estimated taxes.  To meet that exception, the taxpayer must have withholding (and/or timely-paid estimated tax payments) that equal 100% of the amount of tax shown on the taxpayer’s prior-year return.  (The 100% threshold is increased to 110%, if the individual’s adjusted gross income on the previous year’s return exceeded $150,000.)