IRS Waives Penalty for Many

The IRS has announced that it will be waiving the penalty for the underpayment of estimated tax for many taxpayers whose estimated tax payments and federal income tax withholdings came up short for the 2018 tax year.

The underpayment penalty relief is intended to provide assistance to taxpayers that were unable to properly adjust withholding and estimated payments to reflect the numerous changes made to the income tax law under the Tax Cuts and Jobs Act (TCJA).

Generally, the IRS will be waiving the underpayment penalty for taxpayers who have paid at least 85% of their total tax liability during the year. These payments could have been made through federal income tax withholding, quarterly estimated tax payments or a combination of the two methods.

The typical percentage of current year tax that must be paid to avoid an underpayment penalty is 90%.

If you have any additional questions, please contact Brian Reed at breed@bwtpcpa.com or 314-576-1350.

Tax Withholding Adjustments

The tax reform legislation passed by Congress significantly changes the landscape for individuals effective January 1, 2018 and for several years thereafter. For many taxpayers, the changes made by the legislation present many tax planning challenges and opportunities.

While the tax rates have been lowered and the brackets expanded, the exemption deduction has been eliminated and the State and Local tax deduction has been limited to $10,000. These changes will also affect the taxes being withheld on your paycheck. If you are not having enough from your paycheck withheld, you may end up owing more on your taxes.

Please contact BWTP at 314-576-1350 or Justin Work, CPA at jwork@bwtpcpa.com if you would like to determine if your withholdings are adequate in light of the many changes brought about in the Tax Cuts and Jobs Act.