UPDATE as of MARCH 23, 2019 — The IRS has issued further relief for underpayment of estimated taxes, by lowering the prior relief (below, noted at 85%) to only 80%. See new post here.

National Association of Tax Professionals sent out an important bulletin yesterday highlighting a big announcement from the IRS:

The IRS announced that it is waiving the estimated tax penalty for many taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year.

The IRS is generally waiving the penalty for any taxpayer 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. The usual percentage threshold is 90 percent to avoid a penalty.

This 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 TCJA.

This was followed up today by an article in the Journal of Accountancy with further details:

Under Sec. 6654(d)(1)(B), the required annual income tax payment an individual taxpayers is required to make is the lesser of (1) 90% of the tax shown on the return for the tax year or (2) 100% of the tax shown on the taxpayer’s return for the preceding tax year (110% if the individual’s adjusted gross income on the previous year’s return exceeded $150,000). Sec. 6654(a) imposes an addition to tax for failure to make a sufficient and timely payment of estimated income tax. The IRS, however, is entitled to waive the addition to tax in certain unusual circumstances if its imposition would be against equity and good conscience.

Accordingly, under Sec. 6654(e)(3)(A), the IRS is waiving the Sec. 6654 addition to tax for failure to make estimated income tax payments for the 2018 tax year otherwise required to be made on or before Jan. 15, 2019, for any individual taxpayer whose total withholding and estimated tax payments made on or before Jan. 15, 2019, equal or exceed 85% of the tax shown on that individual’s 2018 return. To request the waiver, an individual taxpayer must file Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, with his or her 2018 income tax return. The taxpayer should check the waiver box in Part II, box A, of the form and include the statement “85% waiver” on the return.

The IRS Notice (2019-11) provides further details and explanation.

To clarify — it looks like this relief is not going to help those who have seriously underpaid estimated taxes, to the extent that they are under the newly-adjusted 85% rule. This relief merely adjusts the rule down from a 90%-threshold by 5%, and is intended to assist taxpayers who made the effort to withhold and pay estimates accurately, but could not due to the confusing changes in the new tax law and the less-than-perfect job the new W-4 form does in assisting with calculations (we’re not criticizing the IRS on this one — the new law is too complex to allow for any single form to work for all taxpayers). We still recommend the following:

1. If you run a business, work with your accountant to close the books each quarter and have them calculate estimated tax payments for you; we offer this service to all of our bookkeeping and accounting clients, even if we do not prepare taxes for them.
2. If you are a W-2 employee — especially if you have other sources of income — please use the “paycheck checkup” we highlighted in an August blog post. It is much more accurate than the W-4 form.
3. If it turns out you’ve underpaid for 2018, make sure to adjust your payroll withholding and estimated taxes as soon as possible for 2019.

Source: Some individual taxpayers get relief from underpayment penalty – Journal of Accountancy