Most taxpayers saw their federal income taxes decrease thanks to the new tax rules issues at the end of December 2017. Many taxpayers also saw their refunds fall or their balance due increase for their 2018 taxes as compared with prior years.
That’s because the 2018 withholding tables were adjusted to reduce people’s withholding by more than the amount of taxes they would save under the new tax rules. (Whether or not this was intentional or accidental is a whole other issue.)
The IRS knew that many taxpayers who normally don’t get refunds each would end up owing more taxes than usual when filing their 2018 returns. In most years, one of the safe harbors to avoid paying any underpayment penalties is 90% of your total federal tax. In other words, if the taxes you pay in during the year through withholdings and estimates exceed 90% of your total federal taxes for the year, you would not generally be hit with the Form 2210 underpayment penalty.
Going into the filing season for 2018 tax returns, this safe harbor was reduced to 85%. Even at this reduced safe harbor threshold, however, too many taxpayers were paying underpayment penalties, so on March 22nd, the IRS announced that the safe harbor would be reduced to just 80%.
The problem is that many people already filed their tax returns prior to 3/22/19 and those returns based the underpayment penalty at a safe harbor rate of 85%. If you paid an underpayment penalty (reflected on the Form 1040, Line 23) because your total tax bill was more than 15% of your total tax liability, please check your 2018 Form 1040 to see if your tax bill was less than 20% of your total tax (Form 1040 Line 22 divided by Line 15), and then follow these IRS issued instructions to get that penalty refunded:
Taxpayers who have already filed for tax year 2018 prior to March 22, 2019 but qualify for this expanded relief may claim a refund by filing Form 843, Claim for Refund and Request for Abatement and include the statement “80% Waiver of estimated tax penalty” on Line 7. This form cannot be filed electronically.
While you’re at it, please also read a recent news feed issued by the IRS called: Done with taxes this year? Use 2018 return to get the 2019 withholding right