Treasury Department expands penalty relief for tax underpayments
The Treasury Department on Friday announced it will expand relief for taxpayers who might be facing penalties for not paying enough in taxes this filing season.
Taxpayers who pay at least 80 percent of what they owed last year now won’t face a typical underpayment penalty, officials said.
“Treasury is exempting even more taxpayers from the usual underpayment penalties in an effort to help those who attempted in good faith to meet their withholding obligations,” said Treasury Secretary Steven T. Mnuchin.
The IRS had announced in January that taxpayers wouldn’t be subject to usual underpayment penalties as long as they paid at least 85 percent of what they owed, which was down from the typical threshold of 90 percent.
Many taxpayers are grappling with new withholding amounts in their paychecks as a result of the $1.5 trillion tax-cut law the GOP-led Congress passed in December 2017.
For the week ending March 15, the average tax refund for the current filing season was $2,957 almost exactly where it was a year ago at this time.
Still, some people who did get a net tax cut that showed up in their paychecks over the course of the last year could now be getting hit with unexpected bills even if they do come out ahead in the end.
Revised instructions for those affected are supposed to be posted on the IRS’s website no later than Monday, and software providers are expected to integrate the changes into commercially-available software within the next week.
People who have already filed their taxes and paid the anticipated penalty can file a new form to claim a refund, senior Treasury officials told reporters on a conference call.
In 2017, there were between 10 million and 12 million taxpayers that had underpayment penalties totaling about $1.6 billion that year, officials said.
They estimated that between 25 percent and 30 percent of those facing a penalty would get relief with the new change.
The announcement is a shift from last month, when the Treasury Department responded to Senate Democrats’ push for additional waivers by saying that the 85 percent threshold provided “substantial relief” for taxpayers.