Taxpayers who had too little withheld from their paychecks in 2018 now have a little more room to breathe. The IRS on Friday lowered the withholding underpayment threshold to 80 percent for the 2018 tax year, down from the 85 percent cutoff announced earlier this year and the 90 percent threshold usually in effect. That means that filers who paid at least 80 percent of what they owe will avoid underpayment penalties.
Worried that millions of taxpayers inadvertently had too little withheld from their paychecks last year due to uncertainty around the new tax rules, numerous lawmakers and accountants had pressed Treasury Secretary Steven Mnuchin for the reduction. The change will reduce the number of people who have to pay the penalty by as much as 30 percent.
“Treasury is exempting even more taxpayers from the usual underpayment penalties in an effort to help those who attempted in good faith to meet their withholding obligations,” Mnuchin said in a statement.
More critically, David Dayen, the incoming editor of The American Prospect, said that the adjustment “is an enormous red flag that something went deeply wrong with withholding” in the first year of the GOP tax law.