The IRS announced that it is waiving the estimated tax penalty in certain circumstances. The waiver applies to certain individual taxpayers whose 2018 estimated tax payments did not meet the penalty’s usual safe harbor. The IRS designed this relief to help taxpayers who were unable to adjust their tax payments for the changes made by the Tax Cuts and Jobs Act ( P.L. 115-97).
Estimated Tax Penalty
Under the “pay-as-you-go” system, taxpayers must pay most of their federal tax obligation during the year, generally by having tax withheld from paychecks and other income, or by making estimated tax payments. A penalty (addition to tax) for failure to pay enough tax may be imposed if the individual expects to owe at least $1,000 in tax for the tax year, but not if the taxpayer qualifies for a safe harbor. The individual meets the safe harbor if his or her tax payments for the tax year were:
- at least 90 percent of the individual’s tax liability for the tax year; or
- at least 100 percent of the prior year’s tax liability (110 percent if the taxpayer’s adjusted gross income is more than $150,000, or $75,000 if married filing separately).
2018 Penalty Waiver
For 2018 tax payments, the IRS will waive the penalty for any individual taxpayer whose total withholding and estimated tax payments made on or before January 15, 2019, equal or exceed 85 percent of his or her total tax liability for 2018. A taxpayer who paid less than 85 percent is not eligible for the waiver, and the IRS will calculate his or her penalty using the normal 90-percent threshold.
To request the waiver, an individual must file Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, with his or her 2018 income tax return. Taxpayers should complete Part I of Form 2210 and the worksheet included in the form instructions to determine if the waiver applies. If it does, the taxpayer should check the waiver box on the form (Part II, Box A) and include the statement “85% Waiver” with the return.
