Penalty Relief for Withholding, Estimated Tax Shortfalls (for owners & your employees)
By Sean Dever, CPA & Associates

The estimated tax penalty has been waived for many taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year; however, there is a catch: the penalty is only waived for taxpayers who paid at least 85 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. Typically, a taxpayer must pay 90 percent to avoid a penalty.

The waiver computation will be reflected in a revised Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts, and instructions.

This penalty relief is designed to help taxpayers who were unable to properly adjust their withholding and estimated tax payments to reflect an array of changes under the Tax Cuts and Jobs Act (TCJA), the far-reaching tax reform law enacted in December 2017. Although most 2018 tax filers are still expected to get refunds, some taxpayers will unexpectedly owe additional tax when they file their returns.

The updated federal tax withholding tables, released in early 2018, largely reflected the lower tax rates and the increased standard deduction brought about by the new law. This generally meant taxpayers had less tax withheld in 2018 and saw more in their paychecks.

However, the updated withholding tables were not able to fully factor in other changes, such as the suspension of dependency exemptions and reduced itemized deductions. As a result, some taxpayers could have paid too little tax during the year, if they did not submit a properly-revised W-4 withholding form to their employer or increase their estimated tax payments; i.e., a "Paycheck Checkup" to avoid a situation where they had too much or too little tax withheld when they file their tax returns.

If you would like more information on the above, or help with any of your tax or financial needs, please contact us today for more information. We are waiting to serve you.

Sean Dever, CPA & Associates is a full service accounting firm offering payroll, bookkeeping & SPECIALIZED tax services to over 150 Gymnastics Schools across the United States. If you would like to learn more about our services or receive a complimentary review of your prior year tax return please contact us at sean@devercpa.com. You can also find out more about our firm and services at www.devercpa.com.