Sen. Ron Wyden, D-Ore., the top Democrat on the Senate Finance Committee, inquired Thursday whether taxpayers paid less in taxes than they were supposed to in 2018 because of the Republican tax cuts and is pushing tax collectors to go easy on them over the confusion.
Wyden sent a letter to Internal Revenue Service Commissioner Charles Rettig on Thursday requesting information on how the tax collection agency plans to accommodate for the possibility that tens of millions of taxpayers may have inadvertently underwithheld their taxes due to changes made by the 2017 tax reform law.
“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,” Wyden wrote, adding that those taxpayers should receive a one-time waiver for any tax penalties caused by that as a “damage control” measure.
“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 [used by employees to calculate withholding] right for the 2020 filing season,” Wyden said.
The 2017 tax law doubled the standard deduction and increased the child tax credit but did away with many line-item deductions and put caps on other major breaks, like the deductions for mortgage interest and state and local taxes paid. In a July report, the Government Accountability Office, a congressional investigatory and research agency, estimated that close to 30 million taxpayers may have underwithheld on their W-4 forms as a result, meaning they will owe more to the IRS than usual in April — even if they received an overall tax cut, as most did.
Though the IRS penalizes for not withholding enough taxes, most will avoid a penalty if they owe less than $1,000 after withholding, even if they did not withhold enough.
Wyden asked Rettig for a written response, at the commissioner’s earliest convenience, as to whether he plans to waive penalties for underwithholding, and how he plans to address the issue moving forward.
[Also read: ‘Essential’ employees: IRS tax collectors]
