Relief Expanded for Underpayment of Estimated Individual Income Taxes for 2018

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Apr 01, 2019

The IRS issued Notice 2019-25 in March that provided expanded relief for many taxpayers. Generally, the tax code requires taxpayers to pay federal income taxes as they earn income, either through payroll withholdings or quarterly estimated tax payments.

Generally, under section 6654(d)(1)(B), the required annual payment is the lesser of (i) 90 percent of the tax shown on the return for the taxable year or (ii) 100 percent of the tax shown on the taxpayer’s return for the preceding taxable year (110 percent if the individual’s adjusted gross income on the previous year’s return exceeded $150,000). Earlier this year, the IRS adjusted the 90% safe amount down to 85%. However, with this latest notice, it increases the availability of the waiver of additional tax under section 6654 by expanding the waiver to individuals whose total withholding and estimated tax payments equal or exceed 80% of the tax shown on the return for the 2018 taxable year.

To request this waiver, an individual must file Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, with his or her 2018 income tax return. The form can be filed with a return filed electronically or on paper. Taxpayers should complete Part I of Form 2210 and the worksheet included in the form instructions to determine if the waiver in this notice applies. If the waiver applies, check the waiver box (Part II, Box A), include the statement “80% Waiver” next to Box A, and file page 1 of Form 2210 with the return.

If you already filed your 2018 tax return and were subject to an addition of tax for underpayment of taxes because of the 85% rule but would be exempt from an addition to tax under this Notice, you may claim a refund of the additional amount paid. To claim a refund of the addition to tax under section 6654 for the 2018 tax year, the taxpayer should file Form 843, Claim for Refund and Request for Abatement. Taxpayers should complete the form and include the statement “80% Waiver of estimated tax penalty” on Line 7.

The accountants at Terry Lockridge & Dunn are available to assist you with filing your Claim for Refund and Request for Abatement. Please reach out to them at 319-364-2945 in Cedar Rapids or 319-339-4884 in Iowa City.