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Rep. Chu Introduces Taxpayer Penalty Protection Act

December 13, 2018
Press Release

WASHINGTON, D.C. – Today, Rep. Judy Chu (CA-27) introduced the Taxpayer Penalty Protection Act, a bill that would shield taxpayers from withholding penalties for the 2018 filing year should they find themselves to be under-withheld due to the rushed changes made in the Republican tax law. Because of the new IRS withholding tables, and the fact that many taxpayers did not adjust their withholding, the impact of the Tax Cuts and Jobs Act (TCJA) will largely remain unknown until taxpayers prepare their returns in early 2019. In a recent survey, H&R Block found that only 1 in 5 people adjusted their Form W-4 after passage of the law. Additionally, GAO found that 30 million filers, or 1 in 5 taxpayers, will find that they owe the IRS next year due to withholding changes made because of the TCJA. The administration has already offered penalty relief to corporate multinationals subject to the new transition tax on foreign earnings, but no similar relief has been granted to individuals. This bill corrects that by creating a one-time safe harbor to protect individuals and small businesses against the Failure to Pay Estimated Tax Penalty under IRC 6654 if the amount of taxes paid by the taxpayer for 2018 was 80% of the amount of tax the taxpayer paid in 2017, and 100% of the amount the taxpayer paid in 2017 if they are high income earners with an AGI over $150,000.

This bill follows a July letter sent by Rep. Chu and 12 Democratic members of the Ways and Means Committee to Acting Internal Revenue Service (IRS) Commissioner David Kautter urging the IRS to give individuals and small businesses the same leniency, grace periods, and penalty waivers given to multinational corporations as the recently passed tax law is implemented. Since sending that letter, the Information Reporting Advisory Committee (IRPAC) also recommended that IRS waive these penalties for next year.

Rep. Chu issued the following statement:

“Individual taxpayers, already burdened by the cap on the State and Local Tax Deduction and the loss of personal exemptions, shouldn’t also be penalized because the Republican tax overhaul was rushed through the process. But that is what is set to happen. About 20% of individual taxpayers are expected to under-withhold on taxes owed because they have not had a chance to fully understand the changes in the tax law. The administration predicted this, which is why they waived the penalty for the new transition tax on foreign earnings for corporations. Yet individuals and small businesses have not received any similar help. It’s clear this bill was rushed and many Americans stand to face penalties because of it. My legislation will correct that by protecting individuals and small businesses from an unexpected bill as they file next year.”

This bill can be found online here and is cosponsored by Reps. Lloyd Doggett (D-TX), John Larson (D-CT), Danny Davis (D-IL), Linda Sanchez (D-CA), and Brian Higgins (D-NY).