Sent a letter several days ago to financial planners warning them about the withholding problem.
Just a heads up, I'm seeing a lot of clients, especially dual income couples, with no children under 17, already owing a lot for their 2018 federal taxes (around the $5k mark) for federal. There might be similar issues for Hawaii, where the top tax rate has gone up to 11%, but the withholding tables use a top rate of 7.9%. The 11% Hawaii tax rate applies to single taxpayers earning over $200,000 and married taxpayers earning over $400,000.
The IRS when they created their withholding tables for the new Tax Cuts and Jobs Act, went too low, so we're seeing lots of clients being underwithheld. What I'm seeing are married couples who earn jointly around the $200,000 - $400,000, owing about $1,000 more in federal taxes under the new law, but then their withholding went down $4,000, creating this $5,000 balance.
Anyway, I'm telling the financial planners I know, to prepare themselves for the possible calls from clients. The IRS has talked about a automatic waiver of penalties, but hasn't done so yet. Any penalty for being underwithheld should generally be less than 4% of the balance. If the underpayment penalty is substantial for any client, there is a one time abatement of penalties form you can file with the IRS.
And the IRS is very underfunded, so I think it's going to be a very challenging tax season for taxpayers. There are similar issues with the Hawaii tax office.
Finally, if you haven't had a chance to look at the new 1040, you might want to, as it looks very different from previous years.
Thanks & Happy New Year!
Looks like Ron Wyden (D-OR) sent a letter to IRS Commissioner, Chuck Rettig yesterday. He basically wrote the letter I would have written.