The Good News: IRS Waiving Penalties
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 threshold to avoid a penalty is 90 percent.
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.
Other Challenges: Technology
With only 57 percent of IRS staff returning to work, the IRS is undertaking a herculean effort to update its systems following the largest change to tax codes in years. The good news is that the IRS will re-open call centers even if the shutdown continues. Customer service at call centers is expected to be slow this tax season thanks to additional questions taxpayers may have because of changes to the tax code.
Tax preparers, enrolled agents and CPAs are anticipating hiccups with the newly updated systems and delays in getting returns processed during the initial period after the shutdown ends. IRS workers will return to a backlog of prior year returns to process before they can get started on the 2018 returns that have been filed. “We are cautiously optimistic and continue to encourage our clients to not wait to get their 2018 tax records together,” says Kevin Kressig, CPA, Tax Shareholder.
Refund Slow Down
Taxpayers may see a slowing of refunds too. Tax return filings and refunds are processed automatically for most individual taxpayers. But if there are specific issues flagged in a return, it could take longer to process than normal thanks to a reduction in IRS staff.
For taxpayers who claimed the Earned Income Tax Credit or for one of the subsidies for health insurance under the ACA, refunds won’t hit mailboxes until at least February 15 because IRS staff will need more time to review the refunds for fraud.
Business as Not Usual?
Just like before the shutdown, the IRS will continue to flag returns that raise red flags for further inspection, while non-automated audits will continue to be on pause.
And for taxpayers who have unpaid tax bills from previous years, “Remember that penalties and interest are going to continue to accrue even if you can’t get an answer from the IRS about your situation,” explains Kressig.
Kressig adds “Don’t think that the shutdown is an opportunity to use the chaos to your advantage. The IRS is going to get their money one way or another,” says Kressig.
Keep your 2018 tax return process as smooth as possible. Contact us to schedule a meeting with one of our tax professionals.