This post was updated on March 22.
The Internal Revenue Service (IRS) has announced that it is waiving the tax penalty
for many home builders and other small businesses that pay estimated quarterly taxes but whose 2018 federal income tax withholding and/or estimated tax payments fell short of their total tax liability for the year.
In a letter sent June 7
to Treasury Secretary Steve Mnuchin, NAHB called on the IRS to take this action because of confusion over how the landmark Tax Cuts and Jobs Act tax reform law enacted in December 2017 would be implemented.
"Issuing guidance now for a safe harbor on underpayment for the millions of taxpayers who are required to submit estimated quarterly tax payments, particularly in light of the complexities of the Section 199A pass-through deduction
, would be a welcome relief to small businesses," the letter said.
The IRS said in a Jan. 16 press statement
that it is "generally waiving the penalty for any taxpayer who paid at least 85% of their total tax liability during the year through federal income withholding, quarterly estimated tax payments or a combination of the two. The usual percentage threshold is 90% to avoid a penalty."
On March 22, the IRS announced it is further lowering the penalty threshold from 85% to 80%
. "We heard the concerns from taxpayers and others in the tax community, and we made this adjustment in an effort to be responsive to a unique scenario this year,” said IRS Commissioner Chuck Rettig. “The expanded penalty waiver will help many taxpayers who didn’t have enough tax withheld."
This means that a taxpayer will not owe a penalty if they paid at least 80% of their total 2018 tax liability. If the taxpayer paid less than 80%, then they are not eligible for the waiver and the penalty will be calculated as it normally would be.
NAHB cannot provide specific tax advice for small businesses filing quarterly returns: They should contact a tax professional. However, NAHB is working to bring certainty to its members so they are able to gain the greatest benefit from these recent, sweeping changes to the nation’s tax code and continue to help the economy expand.
For additional information, contact David Logan