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Wyden asks IRS to overlook penalties for unexpected tax bills

Senator Ron Wyden, D-Ore., the top Democrat on the Senate Finance Committee, sent a letter Thursday to Internal Revenue Service Commissioner Charles Rettig asking the IRS to waive the penalties associated with surprise tax bills that he expects to hit millions of workers and families when they file their taxes this year, thanks to the changes in the Tax Cuts and Jobs Act.

The Government Accountability Office estimated in a report last year that nearly 30 million taxpayers could have under-withheld their taxes after the passage of the new tax law in December 2017. Wyden also pointed out that the partial government shutdown has left the IRS with a reduced staff, and he emphasized the need for prompt action to protect taxpayers from hefty tax bills.

In his letter to Rettig, Wyden asked how the IRS plans to respond to taxpayers who have been under-withheld and how to prevent this issue for future filing seasons.

Senator Ron Wyden
Senator Ron Wyden, a Democrat from Oregon

“As you know, the 2017 tax law upended middle-class tax benefits even while promising households a massive tax refund,” Wyden wrote in his letter to Rettig. “While the tax law expanded the Child Tax Credit and standard deduction, it also repealed personal exemptions and many itemized deductions and capped the state and local income tax deduction at $10,000. Republicans also rushed their tax bill’s implementation, insisting on a start year of 2018 for a bill they had barely completed at the end of 2017. As a result, Treasury had to jury-rig the current withholding allowance instead of properly revising the W-4 so that employees could update the number of allowances they claim with their employers.”

Wyden pointed out that many taxpayers would not have followed the IRS’s suggestion that they use a withholding calculator on the IRS website to adjust their withholding amount.

“Treasury Secretary [Steven] Mnuchin and your predecessor, Acting Commissioner [David] Kautter, proposed that taxpayers use the new IRS tax calculator to determine whether they were being under-withheld by Trump’s tax law,” he wrote. “However, according to a recent IRS Information Reporting Program Advisory Committee report, it does not sound like most taxpayers actually visited the IRS website and clicked through all the complicated steps. The IRPAC report consequently warns that Treasury’s makeshift W-4 combined with few successful taxpayer visits to the IRS calculator ‘may cause a significant number of taxpayers to be under-withheld when they file their 2018 personal income tax returns.’”

Wyden suggested the IRS waive any penalties on taxpayers who may have under-withheld through no fault of their own. “It seems unavoidable that millions of taxpayers who are expecting critical tax refunds will instead owe taxes when they start to fill out their returns in a few short weeks,” he warned. “Again, the Republican tax bill was rushed from start to finish, and passed over Democrats’ objections, so all we can do in the short-term is damage control. While the IRS cannot spare taxpayers who have been under-withheld from paying what is due, IRPAC recommends that IRS waive under-withholding penalties on taxpayers for this filing season so as not to add insult to injury. Such a one-time waiver would also spare both taxpayers and the dedicated staff of the IRS a modicum of grief this coming filing season and give Treasury a reprieve to get withholding and the W-4 form right for the 2020 filing season.”

Wyden added that he was committed to working with both “Republicans and Democrats to legislate key changes to the tax law so that the middle class gets an actual tax cut instead of the windfall to the most fortunate that the 2017 law provided.”

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