When the Tax Cuts and Jobs Act (TCJA) was passed in late 2017, it affected millions of individual taxpayers and tax preparers. As part of its implementation, the IRS adjusted its withholding tables. However, the adjusted withholding tables did not account for factors such as the elimination of personal and dependency exemptions or reduced itemized deductions. The result: Many taxpayers have been unable to accurately calculate their tax liability for 2018 and may have inadvertently under-withheld their taxes.
Thankfully, the IRS saw the challenges that taxpayers could have with the new withholding tables and provided them with underpayment penalty relief. The IRS stated that it would waive the underpayment penalty for individuals who paid, by Jan. 15, 2019, at least 85 percent of the tax due for the current year.
The WICPA and the AICPA welcome this change but believe more should be done. We are hearing from many members that they and their clients are very concerned about the ongoing uncertainty around implementation of the TCJA.
Recently, the AICPA sent a letter to the Department of Treasury and the IRS, urging them to provide more extensive relief to taxpayers. The letter cites five recommendations that would benefit taxpayers:
• Taxpayers should receive relief from underpayment penalties if they paid at least 80 percent of the tax due for the current year, or if they paid 80 percent (100 percent if their AGI exceeds $150,000) of the amount of tax shown on their U.S. income tax return for the prior year.
• Taxpayers should also receive relief from late payment penalties if they make a timely request for an extension of time to file their income tax return and pay, with the request, at least 80 percent of the taxes owed.
• The IRS should establish an expedited process to grant individuals’ payment penalty relief for reasonable cause due to the considerable uncertainty surrounding the TCJA.
• Taxpayers need the IRS to identify specific circumstances for which providing automatic relief of penalties for the 2018 taxable year is appropriate, thus relieving them of the administrative burden of requesting a waiver of penalties.
• The IRS should also provide businesses and tax-exempt organizations relief from underpayment and late payment penalties.
To stay on top of developments and the profession’s advocacy efforts, visit the AICPA’s Tax Reform Resource Center at aicpa.org/taxreform.