IRS Announcements | January 2019
To avoid underpayment penalties on their tax returns, taxpayers must pay in the lesser of 100% of their prior year tax (110% for higher-income taxpayers) or 90% of their current year tax liability. The penalty is assessed daily on the amount paid below the lesser of those two amounts. After the tax reform law passed in 2017, the IRS lowered the employer withholding tables to account for some aspects of the tax law, but it could not account for the loss of personal exemptions if an employee did not fill out a new W-4 with his or her employer. This may have caused some people to under-withhold during the year and wind up owing money for 2018 - particularly people with multiple dependents. In response, the IRS will allow the exemption to apply if taxpayers paid in at least 85% (rather than 90%) of their 2018 tax. If the taxpayer did not pay in at least 85% of 2018 tax or 100%/110% of 2017 tax, then the penalty will still be calculated on the 90% of 2018 tax amount. Employees who have under-withheld, should update their W-4s as soon as possible to avoid penalties in 2019.
The standard mileage rate for business use of a taxpayer’s car or truck has increased from 54.5 cents/mile in 2018 to 58.0 cents/mile in 2019. This is the amount that a self-employed person may take as a deduction if they are not deducting actual vehicle expenses. It is also the maximum rate at which employers may reimburse employees without the amount being included in the employee’s taxable wages. For personal taxes, the 2019 medical mileage rate is increased to 20 cents/mile and the charitable mileage rate holds steady at 14 cents/mile.
Keep in mind that the December 2017 tax reform law made moving expenses (including mileage) no longer deductible for anyone other than active-duty military, and unreimbursed employee expenses are no longer deductible as itemized deductions. Also, employers are now prevented from reimbursing employees (including shareholders) for actual costs of operating the employee’s car for business use and can only reimburse up to the mileage rate. Employers other than the military also can’t reimburse employees for moving expenses without it being included in the employee’s taxable wages.
Should the current government shutdown continue, the IRS has announced that it will consider certain employees “exempt” due to protecting the government’s property in the form of tax collections. This will enable the agency to process tax returns and issue refunds to taxpayers starting January 28. Call centers will also be available to respond to questions on return preparation, but not for other matters. Hold times are expected to be long for phone calls and in-person appointments will not be available. The service will not be processing penalty abatement requests, nonprofit exemption applications, or installment agreement requests during this time. The IRS will pause audit activities but will continue automated collections activity, including mailing notices. If you have an ongoing matter with the service and cannot reach the office you need, then you are advised to send correspondence by certified mail so that you have record of your submission date.