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Rep. Chu Introduces Taxpayer Penalty Protection Act to Shield Families from Under Withholding Penalties

February 15, 2019
Press Release

WASHINGTON, D.C. – Today, Rep. Judy Chu (CA-27) reintroduced 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, GAO found that 30 million filers, or 1 in 5 taxpayers, will find that they owe the IRS this year. Last year, H&R Block found that only 1 in 5 people adjusted their Form W-4 after passage of the law. On January 16, 2019, the IRS expanded penalty relief for all taxpayers who paid at least 85% of their tax due for the current year. However, as filing season has begun, it is clear that further relief is needed. This bill creates 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 is at least 80% of the taxes owed for all taxpayers in the current year. The bill also waives penalties if the taxpayer has withheld 80% of their tax liability from the prior year (AGI under $150,000), and 100% of their tax liability from the prior year (AGI over $150,000).

The bill comes the same week that Ways & Means Oversight Subcommittee Chairman John Lewis (D-GA) and Rep. Chu, a Member of the Oversight Subcommittee, sent a letter to Department of Treasury (Treasury) Secretary Steven Mnuchin and IRS Commissioner Charles Rettig requesting additional relief for taxpayers who unintentionally underwithheld their income taxes in 2018.

“As tax filing season begins, I have been hearing from constituents shocked to discover they owe the government money, especially when they were expecting a refund as in past years. This is through no fault of their own, as many relied on the IRS’s updated withholding tables to ensure they paid their tax liabilities. There is no reason that complying taxpayers should face penalties because the GOP tax law was so rushed that the rest of the country was left without time to understand its implications. The IRS has acknowledged that under-withholding will be an issue this year, which is why they announced that they would provide limited relief for taxpayers. However, after hearing from constituents, accountants and other experts, it is clear that more relief is needed. That is why I’m reintroducing the Taxpayer Penalty Protection Act today, which will shield more taxpayers from an unexpected bill as they file this year.”

The Taxpayer Penalty Protection Act is endorsed by the American Institute of Certified Public Accountants (AICPA).

The bill is supported by Reps. John Lewis (GA-05), Lloyd Doggett (TX-35), John B. Larson (CT-01), Earl Blumenauer (OR-3), Bill Pascrell, Jr. (NJ-09), Danny K. Davis (IL-07), Linda Sanchez (CA-38), Brian Higgins (NY-26), Terri Sewell (AL-07), Brendan Boyle (PA-02), Dwight Evans (PA-03), Jimmy Panetta (CA-20), Jimmy Gomez (CA-34), and Carolyn Maloney (NY-12).