WASHINGTON — The Internal Revenue Service announced today that it is waiving the estimated tax penalty for many taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year.
 
The IRS is generally waiving the penalty for any taxpayer who paid at least 85 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. The usual percentage threshold is 90 percent to avoid a penalty.
 
The waiver computation announced today will be integrated into commercially-available tax software and reflected in the forthcoming revision of Form 2210 and instructions.
 
This relief is designed to help taxpayers who were unable to properly adjust their withholding and estimated tax payments to reflect an array of changes under the Tax Cuts and Jobs Act (TCJA), the far-reaching tax reform law enacted in December 2017.
 
“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,” said IRS Commissioner Chuck Rettig. “We urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019.”
 
The updated federal tax withholding tables, released in early 2018, largely reflected the lower tax rates and the increased standard deduction brought about by the new law. This generally meant taxpayers had less tax withheld in 2018 and saw more in their paychecks.
 
However, the withholding tables couldn’t fully factor in other changes, such as the suspension of dependency exemptions and reduced itemized deductions. As a result, some taxpayers could have paid too little tax during the year, if they did not submit a properly-revised W-4 withholding form to their employer or increase their estimated tax payments. The IRS and partner groups conducted an extensive outreach and education campaign throughout 2018 to encourage taxpayers to do a “Paycheck Checkup” to avoid a situation where they had too much or too little tax withheld when they file their tax returns.
 
Although most 2018 tax filers are still expected to get refunds, some taxpayers will unexpectedly owe additional tax when they file their returns.
 
Additional Information

Because the U.S. tax system is pay-as-you-go, taxpayers are required, by law, to pay most of their tax obligation during the year, rather than at the end of the year. This can be done by either having tax withheld from paychecks or pension payments, or by making estimated tax payments.
 
Usually, a penalty applies at tax filing if too little is paid during the year. Normally, the penalty would not apply for 2018 if tax payments during the year met one of the following tests:

• The person’s tax payments were at least 90 percent of the tax liability for 2018 or
• The person’s tax payments were at least 100 percent of the prior year’s tax liability, in this case from 2017. However, the 100 percent threshold is increased to 110 percent if a taxpayer’s adjusted gross income is more than $150,000, or $75,000 if married and filing a separate return.

For waiver purposes only, today’s relief lowers the 90 percent threshold to 85 percent. This means that a taxpayer will not owe a penalty if they paid at least 85 percent of their total 2018 tax liability. If the taxpayer paid less than 85 percent, then they are not eligible for the waiver and the penalty will be calculated as it normally would be, using the 90 percent threshold. For further details, see Notice 2019-11, posted today on IRS.gov.
 
Like last year, the IRS urges everyone to check their withholding for 2019. This is especially important for anyone now facing an unexpected tax bill when they file. This is also an important step for those who made withholding adjustments in 2018 or had a major life change to ensure the right tax is still being withheld. Those most at risk of having too little tax withheld from their pay include taxpayers who itemized in the past but now take the increased standard deduction, as well as two-wage-earner households, employees with nonwage sources of income and those with complex tax situations.
 
To help taxpayers get their withholding right in 2019, an updated version of the agency’s online Withholding Calculator is now available on IRS.gov. With tax season starting Jan. 28, the IRS reminds taxpayers it’s never too early to get ready for the tax-filing season ahead. While it’s a good idea any year, starting early in 2019 is particularly important as most tax filers adjust to the revised tax rates, deductions and credits.

Although the IRS won’t begin processing 2018 returns until Jan. 28, software companies and tax professionals will be accepting and preparing returns before that date. Free File is also now available.
 
The IRS also reminds taxpayers there are two useful resources for anyone interested in learning more about tax reform. They are Publication 5307, Tax Reform: Basics for Individuals and Families, and Publication 5318, Tax Reform What’s New for Your Business. For other tips and resources, visit IRS.gov/taxreform or check out the Get Ready page on IRS.gov.

WASHINGTON - Due to the lapse in appropriations, most IRS operations are closed during the shutdown. An IRS-wide furlough began on December 22, 2018, that affects many operations.

During this period, the IRS reminds taxpayers that the underlying tax laws remain in effect, and all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do by law.

2019 Filing Season: Key Information for Taxpayers

The IRS has announced that the 2019 filing season will begin on Jan. 28, 2019, for individual taxpayers. The IRS began accepting business tax returns (non-1040 series) on Jan. 8.

Taxpayers should keep several things in mind during this challenging period:

• File electronically. The IRS will accept paper and electronic tax returns, but taxpayers are urged to file electronically to speed processing and refunds.
• Tax refunds. Refunds will be paid, but the IRS cautions that returns will continue to be subject to refund fraud, identity theft and other internal reviews as in prior years. Taxpayers should use e-file or Free File with direct deposit to help speed refunds.
• Tax filing. Taxpayers can go ahead and start working on their returns in advance of the Jan. 28 opening. Both tax software and tax professionals will be available and working in advance of IRS systems opening. Software companies and tax professionals will then submit the returns when the IRS systems open. The IRS strongly encourages people to file their tax returns electronically to minimize errors and for faster refunds.

Additional information related to the 2019 filing season will be available in coming days on IRS.gov.

Limited Operations During the Appropriations Lapse

Automated applications. IRS.gov and many automated applications remain available, including such things as Where’s My Refund, the IRS2go phone app and online payment agreements.

Telephones. No live telephone customer service assistance is currently available, although the IRS will be adding staff to answer some of the telephone lines in the coming days. Due to the heavier call volume, taxpayers should be prepared for longer wait times. Most automated toll-free telephone applications will remain operational. The IRS encourages people to use IRS.govfor information.

In-person service. IRS walk-in taxpayer assistance centers (TACs) are closed. That means those offices are unable to handle large cash payments or assist identity theft victims required to visit an IRS office to establish their identity. In-person assistance will not be available for taxpayers experiencing a hardship.

Taxpayer appointments. While the government is closed, people with appointments related to examinations (audits), collection, Appeals or Taxpayer Advocate cases should assume their meetings are cancelled. IRS personnel will reschedule those meetings at a later date, when the IRS reopens.

Taxpayer correspondence. While able to receive mail, the IRS will be responding to paper correspondence to only a very limited degree during this lapse period. Taxpayers who mail in correspondence to the IRS  during this period should expect a lengthy delay for a response after the IRS reopens due to a growing correspondence backlog.

Tax-exempt groups. The IRS will not be processing applications or determinations for tax-exempt status or pension plans.

Enforcement activity. During this period, the IRS will not be conducting audits, but automated initial contact letters will continue to be mailed. No collection activity will generally occur except for automated collection activity. For example, automated IRS collection notices will continue to be mailed. Criminal Investigation work, however, continues during this period.

Passports. The IRS will not be certifying for the State Department any individuals for passport eligibility.

For tax professionals and others interested in a more detailed view of IRS operations during the shutdown, there is an extensive listing available in the filing season lapse plan.

The IRS will continue to update this page to provide taxpayers and tax preparers with the latest information available on the tax filing season.

WASHINGTON — An improved version of IRS Free File begins its 17th filing season today as a dozen private-sector partners offer their brand-name products to help eligible taxpayers navigate the new tax reform law and electronically prepare their tax returns.

The free online software program, accessible only through IRS.gov, is available for taxpayers to use in advance of the start of the filing season on Jan. 28.

A number of changes were made to Free File this year, strengthening the program to make it even more taxpayer friendly. More than 53 million taxpayers have used Free File since the program’s inception. The public-private partnership between the Internal Revenue Service and the Free File Alliance provides free, brand-name tax software and free electronic filing to taxpayers who earned $66,000 or less last year. Some providers offer both free federal and free state tax preparation. Active duty military personnel with incomes of $66,000 or less may use any Free File software product offering a military option without regard to other criteria.

“Free File is an important tool that allows taxpayers free access to electronic filing of their tax returns,” said IRS Commissioner Chuck Rettig. “The program has been a great partnership with the private sector, and we’ve taken steps to improve Free File this year. With these changes to the Free File program as well as the new tax law, this is a great year for people to consider using this option for preparing their taxes.”

Starting today, taxpayers can go to www.irs.gov/freefile to find the Free File software product that matches their situation. Each partner sets its own eligibility standards, generally based on age, income or state residency. Taxpayers can do their taxes online from IRS.gov or they can use the IRS2Go mobile app to access Free File and do their taxes on their mobile phones, tablets or any app-enabled device. 

For taxpayers who earned more than $66,000, there is Free File Fillable Forms, the electronic version of IRS paper forms which will be available when the IRS begins the filing season on Jan. 28.

Who can use Free File

Any individual or family whose adjusted gross income for 2018 was $66,000 or less can find at least one Free File software product they can use. Often, taxpayers are eligible for multiple products. The income limitation means that 100 million taxpayers – 70 percent – are eligible to use Free File.

Workers, families with children, first-time filers and seniors who meet the income criteria are all eligible for Free File. The software supports all the new tax law changes as well as long-time benefits such as the Earned Income Tax Credit. While most products have a set of eligibility requirements, 10 Free File partners have a special offer for active duty military personnel by making their sole eligibility criteria an income of $66,000 or less.

IRS Free File is all that’s needed for residents of Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming where there is no state income tax. Some Free File partners offer free federal and free state return preparation. And some states have their own Free File program.

How to use Free File

Taxpayers can only access Free File from IRS.gov. To get started, simply go to IRS.gov/freefile. Use the “Help Me” tool to enter a bit of information such as age, income, and state residency. The tool will match the taxpayer with the software products. Generally, taxpayers will have several options from which to choose. Taxpayers also can review all the offers made by each of the 12 partners if they do not want to use the tool. Once taxpayers make their selection, they will be directed away from IRS.gov to the provider’s website to prepare their return.

Also, taxpayers can use the IRS2Go app to access Free File. Simply download the IRS2Go app onto any app-enabled device. From their phones or tablets, taxpayers can access the “Help Me” tool and go to the provider’s website to do their taxes.

Free File will be available to taxpayers from Jan. 11 through the mid-October deadline for extension filers. Taxpayers, regardless of income, also can use Free File to file an extension from the April 15 deadline.

New agreement offers new consumer protections

The IRS and the Free File Alliance, the consortium of the 12 partners, reached a new agreement recently to extend the Free File program through Oct. 31, 2021. This new memorandum of understanding also included several new consumer protections. These include:

• Removing the “value-add” button from Free File partner landing pages. Free File members will remove any button or link on their Free File landing pages that would take taxpayers to non-Free File programs. The change is designed to improve the transparency of the program, and to make the navigation easier for taxpayers to use Free File.
• Taxpayers can return to the IRS Free File page if they don’t qualify for an offer.  To use Free File, taxpayers must use IRS.gov to connect to a company offering Free File. If the taxpayer doesn’t qualify for a free filing option on a particular member site, the new agreement requires these companies to offer taxpayers the option to easily return to IRS.gov to see if they qualify for another Free File offer.
• Returning taxpayers’ first option must be Free File. If a taxpayer returns to a Free File member’s website the following year after using the free program, the first option after logging into their account will be the Free File option — before receiving any other offers from the company.
• Follow-up emails to taxpayers who used Free File the previous year will welcome them back to the Free File service.This change will strengthen rules for members sending follow up emails to prior year customers, reminding them of the availability of Free File. To help increase program participation, Free File members will email prior year participants welcoming them back to the Free File program. The email cannot contain information about any non-Free File service or product or any other marketing or soliciting, except for free or paid state tax preparation offers.
• Emphasis on the in-place review process. Both the IRS and a third party already review each Free File option before filing season to ensure the program standards are being followed by Free File members. The new agreement now reinforces this longstanding requirement, which has always also included an unannounced review during filing season.

WASHINGTON - While the IRS remains closed during the partial government shutdown, the agency recognizes the immediate hardship incurred if information is not available through the Income Verification Express Service (IVES) program as well as by taxpayers who have been unable to certify their residency in the United States for certain tax treaty benefits or by those who have been unable to obtain photocopies of tax returns.

Following an extensive review, the IRS began processing requests on Jan. 7 for transcript information made through the Income Verification Express Service (IVES) program. IVES is a user fee-based program used primarily by mortgage lenders and others within the financial community to confirm the income of a borrower during the processing of a loan application. The transcript information is delivered to a secure mailbox based on information received from a Form 4506-T or Form 4506T-EZ.

It will take time to bring this service up to normal operating status. The IRS advises IVES participants that it may initially take longer than the standard 72-hour turnaround time for the IRS to process these requests. This is due to employees being brought back to work to begin processing backlogged requests since the funding lapse began on Dec. 22.

The IRS also will start other user fee-based services such as providing a letter needed by some taxpayers to certify their residency in the United States for certain tax treaty benefits and responding to requests for photocopies of tax returns. The IRS notes that tax transcripts – which show most of the information from a tax return – are easily obtained online more quickly, are free and sufficient for most purposes. Taxpayers who still need a paper copy of their actual tax return may submit a Form 4506 along with a $50 fee for a copy of each return. It may take 75 calendar days to process a request for a copy of a return.

Federal law limits what the IRS can do on behalf of taxpayers during a funding lapse; however, some programs funded by user fees present an opportunity for the IRS to help taxpayers receive critical services. These services can assist taxpayers trying to obtain mortgages or taxpayers affected by disasters who need copies of their tax returns as part of the recovery effort.

The IRS appreciates the patience of taxpayers and tax professionals during this period and encourages continued use of automated applications on IRS.gov, whenever possible.

WASHINGTON ― Despite the government shutdown, the Internal Revenue Service today confirmed that it will process tax returns beginning January 28, 2019 and provide refunds to taxpayers as scheduled.
 
“We are committed to ensuring that taxpayers receive their refunds notwithstanding the government shutdown. I appreciate the hard work of the employees and their commitment to the taxpayers during this period,” said IRS Commissioner Chuck Rettig.
 
Congress directed the payment of all tax refunds through a permanent, indefinite appropriation (31 U.S.C. 1324), and the IRS has consistently been of the view that it has authority to pay refunds despite a lapse in annual appropriations. Although in 2011 the Office of Management and Budget (OMB) directed the IRS not to pay refunds during a lapse, OMB has reviewed the relevant law at Treasury’s request and concluded that IRS may pay tax refunds during a lapse.

The IRS will be recalling a significant portion of its workforce, currently furloughed as part of the government shutdown, to work. Additional details for the IRS filing season will be included in an updated FY2019 Lapsed Appropriations Contingency Plan to be released publicly in the coming days.
 
“IRS employees have been hard at work over the past year to implement the biggest tax law changes the nation has seen in more than 30 years,” said Rettig.
 
As in past years, the IRS will begin accepting and processing individual tax returns once the filing season begins. For taxpayers who usually file early in the year and have all of the needed documentation, there is no need to wait to file. They should file when they are ready to submit a complete and accurate tax return.
 
The filing deadline to submit 2018 tax returns is Monday, April 15, 2019 for most taxpayers.  Because of the Patriots’ Day holiday on April 15 in Maine and Massachusetts and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers who live in Maine or Massachusetts have until April 17, 2019 to file their returns.
 
Software companies and tax professionals will be accepting and preparing tax returns before Jan. 28 and then will submit the returns when the IRS systems open later this month. The IRS strongly encourages people to file their tax returns electronically to minimize errors and for faster refunds.

WASHINGTON – After working with the tax preparation community, the Internal Revenue Service today announced it would stop its tax transcript faxing service as of Feb. 4, 2019, and offer a more secure alternative to taxpayers and tax professionals.

The IRS worked with the tax preparation community to reach agreement on an alternative that will meet tax practitioners’ needs in e-filing individual tax returns while also enhancing safeguards for taxpayer data.

The IRS continues to look for way to better protect taxpayer information and tax transcripts, which are summaries of individuals’ tax returns. Cybercriminals who obtain tax transcripts use them to file fraudulent returns that are difficult to detect because they closely mirror a legitimate tax return.

The halt to faxing transcripts is another step taken by the IRS to protect taxpayer data. In September 2018, the IRS began to mask personally identifiable information for every individual and entity listed on the transcript. See New Tax Transcript and Customer File Number.

All financial entries on the transcript remain visible. However, tax practitioners who work to bring taxpayers into compliance by filing prior-year tax returns may need access to employer information that taxpayers no longer have. In those cases, tax practitioners may request an unmasked Wage and Income Transcript. The Wage and Income Transcript can be used for current year tax preparation but it generally is not available until mid-year. 

Alternatives for taxpayers for return preparation
The IRS has multiple ways taxpayers can obtain a copy of their tax transcript other than faxing. Individuals may still call the IRS to obtain a masked tax account transcript and one will be mailed to the last address of record.

For faster service, taxpayers may go to IRS.gov for Get Transcript Online, verify their identities and create a account. They can then view or download a copy of their tax transcript immediately. Or they can go to IRS.gov for Get Transcript by Mail and request a transcript be mailed to their last address of record. Taxpayers also may call 800-908-9946 for automated service to order a transcript by mail.

Alternatives for tax professionals for return preparation
Starting Jan. 7, 2019, tax professionals who contact the Practitioner Priority Service number may, with proper authorization, have an unmasked Wage and Income Transcript deposited in their e-Services secure mailbox.

Tax practitioners must meet certain requirements in order to use the secure mailbox option. Those requirements are outlined in Fact Sheet 2018-20, Steps for Tax Professionals to Obtain Wage and Income Transcripts Needed for Tax Preparation. Practitioners also should review Fact Sheet 2018-21, IRS Offers Tips to Tax Professionals to Reduce CAF Number Errors, Better Protect Data from Cyberthieves.

The Wage and Income Transcript provides information limited to the Forms W-2, 1099 and other income documents sent to the IRS. It does not include general tax transcript information. The Wage and Income Transcript will give tax practitioners the employer information needed to file tax returns electronically.

Tax professionals also may request that an unmasked Wage and Income Transcript be sent to the client’s address of record. Alternatively, taxpayers may request an unmasked transcript for tax preparation, and it will be mailed to their address of record.
 
Faxing and business tax transcripts
The Feb. 4, 2019, discontinuation of the faxing service also applies to business tax transcripts as well as individual tax transcripts. However, business tax transcripts are not masked. At the request of business taxpayers, the transcript will be mailed to the address of record. Tax professionals may obtain a business tax transcript through the e-Service Transcript Delivery System.

WASHINGTON — The Internal Revenue Service issued guidance on excess business loss limitations and net operating losses following law changes in the Tax Cuts and Jobs Act (TCJA).

Excess business losses
The TCJA modified existing tax law on excess business losses by limiting losses from all types of business for noncorporate taxpayers.

An excess business loss is the amount by which the total deductions from all trades or businesses exceed a taxpayer’s total gross income and gains from those trades or businesses, plus $250,000, or $500,000 for a joint return.

Excess business losses that are disallowed are treated as a net operating loss carryover to the following taxable year.

See Form 461 and instructions, available soon, for details.

Net Operating Losses
TCJA also modified net operating loss (NOL) rules. Most taxpayers no longer have the option to carryback a NOL. For most taxpayers, NOLs arising in tax years ending after 2017 can only be carried forward. Exceptions apply to certain farming losses and NOLs of insurance companies other than a life insurance company.

For losses arising in taxable years beginning after Dec. 31, 2017, the new law limits the NOL deduction to 80% of taxable income.

Additional updates can be found on the Tax Reform Provisions that Affect Businesses page of IRS.gov.

Beginning on Jan. 1, 2019, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 58 cents per mile driven for business use, up 3.5 cents from the rate for 2018,
• 20 cents per mile driven for medical or moving purposes, up 2 cents from the rate for 2018, and
• 14 cents per mile driven in service of charitable organizations.

The business mileage rate increased 3.5 cents for business travel driven and 2 cents for medical and certain moving expense from the rates for 2018. The charitable rate is set by statute and remains unchanged.

It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details see Notice-2019-02.

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. These and other limitations are described in section 4.05 of Rev. Proc. 2010-51.

Notice 2018-02, posted today on IRS.gov, contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

WASHINGTON – The Internal Revenue Service today announced that interest rates will increase for the calendar quarter beginning January 1, 2019.  The rates will be:  

• six (6) percent for overpayments [five (5) percent in the case of a corporation];
• three and one-half (3.5) percent for the portion of a corporate overpayment exceeding $10,000;
• six (6) percent for underpayments; and
• eight (8) percent for large corporate underpayments. 

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. 

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during October 2018 to take effect November 1, 2018, based on daily compounding.

Revenue Ruling 2018-32, announcing the rates of interest, is attached and will appear in Internal Revenue Bulletin 2018-51, dated December 17, 2018.

WASHINGTON — The Internal Revenue Service today granted taxpayers an extra day, until Thursday, Dec. 6, 2018 to file any return or pay any tax originally due on Wednesday, Dec. 5.

The IRS granted the extra time, following the Dec. 1 Executive Order closing all federal agencies on Dec. 5, as a mark of respect for George Herbert Walker Bush, the forty-first President of the United States

The one-day extension applies to any return, required to be filed with the IRS, on Wednesday, Dec. 5, 2018. It also applies to any required federal tax payment, originally due on that day. In addition, it also applies to any federal income, payroll or excise tax deposit due on Dec. 5, including those required to be made through the Treasury Department’s Electronic Federal Tax Payment System (EFTPS).