IRS waives underpayment penalty for certain individuals

Tax Hot Topics newsletterThe IRS has issued Notice 2019-11 granting a penalty waiver to certain individual taxpayers who underpaid their 2018 estimated tax. Individuals who withheld or made estimated tax payments equaling at least 85% of their tax liability for the year are eligible.

The notice comes in response to the difficulty many individual taxpayers encountered in estimating their 2018 income tax payments following the sweeping changes to the tax code enacted by the Tax Cuts and Jobs Act.

Individual taxpayers must generally withhold taxes as they earn income or make estimated income tax payments on a quarterly basis. Under Section 6654, an individual’s required annual tax payment equals the lesser of 90% of the tax shown on that year’s return or, if the preceding tax year represented a full 12 months, 100% of the tax shown on the preceding year’s return (110% if the taxpayer’s adjusted gross income exceeded $150,000).

Section 6654(a) imposes a penalty for failure to make sufficient and timely estimated income tax payments. However, Section 6654(e)(3)(A) authorizes the IRS to waive that penalty under certain circumstances. The notice states that the IRS is exercising that authority.

To request the waiver, taxpayers must file Form 2210, “Underpayment of Estimated Tax by Individuals, Estates, and Trusts,” with their 2018 income tax return. Part I of Form 2210 and the worksheet found in the form instructions are used to determine whether the waiver in the notice applies. If it does, the taxpayer must check the waiver box found in Part II and state “85% Waiver” with the return.

Shamik Trivedi
Senior Manager
Washington National Tax Office
T +1 202 521 1511

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