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IRS again lowers threshold for tax underpayment penalty after outcry

Changes this tax season
Changes this tax season 04:03

The Internal Revenue Service said Friday that it is expanding again the relief it grants taxpayers who had too little in income taxes withheld from their paychecks in the first year of a sweeping tax overhaul. It's the second measure of relief from the IRS this year for underpayment.

The tax agency said taxpayers will be able to avoid penalties for paying too little in taxes as long as they paid at least 80 percent of what they owed the government. In January, the IRS had said it would lower the regular threshold to 85 percent, rather than the usual 90 percent. 

"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 in a statement.

Only about one of five tax filers owe in any given year, according to IRS data. But that's likely to be higher this year thanks in part to the Tax Cuts & Jobs Act, which was signed by President Donald Trump at the end of 2017 and went into effect in 2018. The IRS warned late last year that the number of taxpayers "who owe tax, and in some cases a penalty, is likely to be larger than in recent years, and many of them are likely to be people who have always gotten refunds."


Following the tax cuts, many businesses adjusted the amount of tax they withheld from workers' paychecks. As a result, taxpayers who may have been expecting a big refund may find out they've already received their tax cut, in the form of a slightly higher take-home number on their paychecks.

In a statement, Treasury Secretary Steven Mnuchin said the lower threshold would "help those who attempted in good faith to meet their withholding obligations."

The IRS, a bureau of the Treasury Department, said the efforts will help people who didn't appropriately change their withholding or their estimated tax payments in light of the changes in the Tax Cuts & Jobs act. Mnuchin had been urged by a number of lawmakers during appearances before Congress last week to make the move.

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