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WASHINGTON, Jan 16 (Reuters) - The U.S. government tax agency said on Wednesday it would not impose penalties on many taxpayers who had too little federal income tax withheld from their pay last year, or who paid less than their estimated tax liabilities.
In a concession that follows a sweeping U.S. tax overhaul enacted in late 2017, the Internal Revenue Service lowered its threshold for waiving the penalty to help taxpayers affected by tax law changes ushered in by the 2017 Tax Cuts and Jobs Act.
Tax penalties will be waived generally for taxpayers who have paid at least 85 percent of their total liability through withholding, quarterly estimated tax payments or a combination of the two, the IRS said. The threshold is usually 90 percent.
The IRS released updated federal tax withholding tables early in 2018 to reflect adjustments in the tax law. But tax authorities later acknowledged that the tables did not fully factor in some changes including exemptions for dependents and reduced itemized deductions.
The new policy also comes at a time when the IRS has been hit by a partial government shutdown, now in its 26th day, with no end in sight. The agency said earlier this week it would bring more than 46,000 furloughed employees back to work without pay to handle annual tax returns, refunds and other tasks.
About one-quarter of the federal government shut down on Dec. 22 over President Donald Trump's demand for $5.7 billion to fund a wall along the U.S.-Mexico border, which Democrats oppose.
The U.S. tax filing season is set to begin on Jan. 28 and last until the April 15 filing deadline. Democrats, who criticized its withholding tables as inaccurate last year, are now raising questions whether the IRS can provide refunds on time.
"We realize there were many changes that affected people last year, and this penalty waiver will help taxpayers who inadvertently didn't have enough tax withheld," IRS Commissioner Chuck Rettig said in a statement.
"We urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019," he said. (Reporting by Kevin Drawbaugh and David Morgan; Editing by Susan Thomas and Peter Cooney)