IRS Waives Underpayment Penalty…….Sort of
Although tax returns are not due until after year end, payment of tax is actually due to be paid thorough the year. This is done either through withholding in your paycheck, or by making estimated tax payments. If the payments are not made in the proper amounts during the year there is an estimated tax penalty. To avoid the penalty, taxpayers must have correctly paid in 90% of the tax by the time the tax return is due, without extensions. For 2018, due to the uncertain effects of the new tax laws and rates, the IRS has announced that they are waiving this penalty. However, it’s not quite as good as it sounds. While the headlines may read that the penalty was waived, it is only waived for people who have paid in 85%, rather than 90%. Therefore, the IRS is only waiving the penalty if your estimated tax payments or withholdings were off by 5% or less. Furthermore, due to certain waivers of the penalty for small underpayments, it is hard to imagine many middle to low income taxpayers will even fit this category. In the end, any relief is always welcome, but with the uncertainty of the Tax Cuts and Jobs Act, the IRS probably could have gone farther than overselling this very small assistance.