There was always a delicate balance between keeping enough income during the year and avoiding owing taxes. Many people here in Massachusetts and across the country got hit with unexpected bills for the 2018 tax year because they did not realize they needed to make adjustments in order to account for the new Tax Cuts and Jobs Act. Due to this, the IRS decided to waive the usual underpayment penalty for some individuals.
This waiver only applies to the 2018 tax year. The IRS expects people to adjust their withholding in order to avoid the penalty beginning with the 2019 tax year. The waiver applies to filers who were able to pay 80% of the amount they owed. Ordinarily, that percentage must be 90% in order to avoid the underpayment penalty.
However, with all of the confusion that occurred with this last round of income tax returns, the IRS saw the writing on the wall back in January when it lowered the percentage to 85%. Then it became clear that it needed to be lowered even more, but around 400,000 people filed their taxes too soon to receive the waiver. Many probably did not even know to apply for it. The agency says that taxpayers who fit the criteria need not do anything in order to receive a refund of the penalty. It will notify those individuals by mail and refund checks should come thereafter.
Taxpayers here in Massachusetts may want to make sure they are withholding the right amount from their paychecks in order to avoid the IRS charging them this penalty in the future. The new tax laws are confusing and cumbersome for people with normal tax situations. For those whose situations are anything but normal, it makes sense to conduct a thorough review in order to make sure that they do not pay more in taxes than necessary and avoid any potential penalties that could prove costly.