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IRS says 400K Americans who underpaid taxes will have penalty automatically waived

Brittany De Lea

The IRS on Wednesday said it would automatically waive a penalty for hundreds of thousands of Americans who underpaid.

More than 400,000 people who already filed their 2018 return will not be subject to the underpayment penalty, which is generally levied on people who did not pay at least 90 percent of their tax liabilities through either withholding or estimated payments.

While the IRS previously announced it would grant some relief to taxpayers, it is looking to help people who may not have known about an available penalty waiver.

"The IRS is taking this step to help affected taxpayers," IRS Commissioner Chuck Rettig said in a statement. "This waiver is designed to provide relief to any person who filed too early to take advantage of the waiver or was unaware of it when they filed."

During the year the agency announced that it would waive the penalty for people who paid at least 80 percent of what they owed, since the new tax law could have resulted in a higher number of inaccurate calculations.

The threshold was initially lowered to 85 percent in January, before being reduced even further to 80 percent in March.

Throughout the year, the IRS and Treasury urged Americans to check their withholding amounts, even providing an online calculator to do so.

Only 6 percent of taxpayers were expected to have wages accurately withheld, while 73 percent are likely to have their taxes overwithheld. The former is three percentage points less than a simulation conducted using the same withholding structure and the old tax code.

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The waiver will be automatically applied to all eligible tax accounts, so individuals do not need to contact the IRS.

Any taxpayer who already paid the penalty will be refunded.

The IRS also has a new tax withholding calculator available on its website, so taxpayers can ensure they are not hit with this penalty next year.

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