IRS waiving penalty for some in first filing season under Trump’s tax law

The IRS on Wednesday announced that it will waive a penalty for some taxpayers who didn’t have enough money withheld from their paychecks last year, in an effort to aid people as they adjust to the tax-code changes made by President Trump’s tax law.

“We realize there were many changes that affected people last year, and this penalty waiver will help taxpayers who inadvertently didn’t have enough tax withheld,” IRS Commissioner Charles Rettig said in a news release. “We urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019.”

{mosads}In early 2018, the IRS released new guidance about tax withholding from people’s paychecks that was designed to reflect Trump’s 2017 tax law. The guidance reflected changes such as the lower tax rates and larger standard deduction.

Most taxpayers across the income spectrum are expected to receive a tax cut for 2018 because of the tax law. 

When the withholding guidance came out, Treasury Secretary Steven Mnuchin said he expected 90 percent of wage earners to see more take-home pay due to the guidance. The IRS also expects most taxpayers to receive refunds this year when they file their tax returns for 2018.

But the new withholding guidance did not account for all of the tax changes made in the 2017 law, so some taxpayers may have ended up having too little in taxes taken from their paychecks last year. Those people will end up owing money when they file their taxes in the coming weeks and months.

Taxpayers typically owe a penalty if they don’t pay enough taxes during the year. Normally, the penalty wouldn’t apply for 2018 if the taxpayer made payments throughout the year of at least 90 percent of their 2018 tax liability or at least 100 percent of their 2017 tax liability.

But the IRS said that it will lower the 90 percent threshold to 85 percent for waiver purposes, to reduce the number of people who might have to pay a penalty this year.

Lawmakers on both sides of the aisle had requested that the IRS waive penalties for taxpayers who didn’t have enough withheld from their paychecks.

Senate Finance Committee ranking member Ron Wyden (D-Ore.) had asked the IRS to waive underwithholding penalties in a letter earlier this month. Finance Committee Chairman Chuck Grassley (R-Iowa) said on the Senate floor Wednesday that he had “encouraged the IRS to be lenient on penalties, especially with this first time through a filing season under the new tax law.”