How the Latest IRS Penalty Changes Affect Your Tax Return

How the Latest IRS Penalty Changes Affect Your Tax Return

The 2017 Tax Cuts & Jobs Act changed a number of things about the tax code, including how much some people should withhold from their paychecks. Lifehacker gave a few warnings to adjust your withholdings in 2018 lest you get hit with an under-withholding penalty this tax season, but if you didn’t, there’s less reason to worry: The IRS announced last week that it is waiving the fine in some cases.

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Last year, the agency suggested that taxpayers update their withholdings to ensure that they were in line with the new tax law. But now the IRS said it is “generally waiving the penalty for any taxpayer who paid at least 85 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two” because of any confusion caused by the new law. Usually the standard is 90 percent.

“A taxpayer will not owe a penalty if they paid at least 85 percent of their total 2018 tax liability,” notes the agency. “If the taxpayer paid less than 85 percent, then they are not eligible for the waiver and the penalty will be calculated as it normally would be, using the 90 percent threshold.”

Because the tax rates for the new law are generally lower and the standard deduction is higher, taxpayers would have seen more money in paychecks last year than in past year. But, as the IRS explains, these withholdings couldn’t account for some of the other changes, like reduced itemized deductions. “As a result, some taxpayers could have paid too little tax during the year, if they did not submit a properly-revised W-4 withholding form to their employer or increase their estimated tax payments.”

“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,” said IRS Commissioner Chuck Rettig in a statement. “We urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019.”

To adjust your withholdings for next tax season, use the IRS’s Withholdings Calculator.

 

Source:- lifehacker

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