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If You Paid A Tax Penalty Due To Under-Withholding in 2018, You May Qualify For A Refund

Originally posted on Forbes.com

Did you pay a penalty for under-withholding 2018 taxes when you filed your tax return this year?  

If you filed your 2018 tax return and paid a penalty for under-withholding taxes, you need to know about the IRS’s recent expanded relief issued last week.  You may be positioned for a tax refund relief, but the problem is that the IRS is not issuing refunds automatically.  Assuming you qualify, you'll have to file IRS Form 843 and that might not even be part of the tax software you use.

Background

Last January, the IRS issued relief that was superseded last week with a more generous adjustment.

The IRS "heard the concerns from taxpayers and others in the tax community, and we made this adjustment in an effort to be responsive to a unique scenario this year,” said IRS Commissioner Chuck Rettig in release IR-2019-55.

"For waiver purposes only, today’s [March 22, 2019] relief lowers the 90 percent threshold to 80 percent. This means that a taxpayer will not owe a penalty if they paid at least 80 percent of their total 2018 tax liability. If the taxpayer paid less than 80 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.”  (Earlier, in January, the IRS had lowered the threshold to 85 percent.)

This expanded penalty waiver will help many taxpayers who didn’t have enough tax withheld in 2018, explained Rettig.

That's good news for many.  But what if you paid your taxes and penalties before March 25th without qualifying for relief based on the earlier 85 percent threshold?

What to do 

If you qualify for the 80 percent threshold and already paid your taxes and the penalty, you need to claim a refund -- as I mentioned, it is not automatic.

File Form 843 “Claim for Refund and Request for Abatement.” Complete the form and add the statement “80 Percent Waiver of estimated tax penalty” on Line 7 of the Form, advises IRS Notice 2019-25.  Tax software providers may not make Form 843 in their software, so you will have to download it, along with instructions from the IRS website.

Be aware that the IRS is updating forms and publications now to reflect the new relief.  They will be coming out shortly, according to the IRS.

I spoke with Lisa Greene-Lewis, CPA and Tax Expert for TurboTax, about the status of their software updates.  She advised that relevant updates that provide the expanded IRS penalty relief for underpayment of federal taxes are underway and are expected to be released by the end of the week.  (Form 843 is not part of the 1040 tax software.)

Resources

Here are links to current IRS resources:

IRS Form 843

Instructions to Form 843

IRS Form 2210

Instructions to Form 2210

IR-2019-55 March 2019

IR-2019-03 January 2019

IRS Notice 2019-25: “Relief from Addition to Tax for Underpayment of Estimated Income Tax by an Individual” (superseding Notice 2019-11)

IRS Notice 2019-11: “Relief from Addition to Tax for Underpayment of Estimated Income Tax by an Individual”

You'll also want to read IRS Expands Tax Underpayment Penalty Relief, by Forbes columnist, Ashlea Ebeling.


To read Julie Jason's books, go to: https://juliejason.com/books/julies-books.