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Tax Cuts and Jobs Act

Senator queries IRS on penalty relief for underwithholding due to the TCJA

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

In a letter to IRS Commissioner Charles Rettig dated January 3, Ranking Member of the Senate Finance Committee Ron Wyden (D-OR) expressed his concerns that due to the many changes by the Tax Cuts and Jobs Act (TCJA; P.L. 115-97, 12/22/2017), millions of taxpayers may have been underwithheld this past year and will face unexpected tax liability and penalties.

Wyden asked the IRS Commissioner how IRS plans to respond to taxpayers who have been underwithheld this filing season and whether he agreed that IRS should waive penalties for these taxpayers. Wyden’s letter listed some of the many changes in the TCJA that might impact withholding. The TCJA repealed personal exemptions and many itemized deductions and capped the state and local income tax deduction at $10,000. Wyden cited a Government Accountability Office (GAO) report that estimated that nearly 30 million taxpayers could be underwithheld in 2018.

Wyden’s letter noted that due to the quick nature of the TCJA’s implementation (enacted Dec. 22, 2017, effective Jan. 1, 2018), Treasury had to “jury-rig the current withholding allowance instead of properly revising the Form W-4 so that employees could update the number of allowances they claimed with their employers.” Wyden stated that although taxpayers were encouraged to use the new IRS tax calculator to determine whether they were being underwithheld, a recent IRS Information Reporting Advisory Committee (IRPAC) report indicated that most taxpayers did not visit that IRS website and click through all the complicated steps.

Wyden stated that a one-time penalty waiver for underwithholding would spare both taxpayers and IRS grief this coming filing season and give Treasury a reprieve to get withholding and the W-4 form right for the 2020 filing season.

Senator Wyden’s Letter

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