Good tax news for freelancers! The IRS is automatically waiving 2018 estimated tax penalties
The Internal Revenue Service has really been digging into its watchdog role lately, but here’s proof that the agency tries to take a balanced approach when it can: The IRS has announced that it will automatically waive the estimated tax penalty for over 400,000 eligible taxpayers who have already filed their 2018 federal income tax returns but who didn’t claim the waiver.
This announcement comes in addition to a move by the IRS to lower the usual 90 percent penalty threshold to 80 percent — to help taxpayers whose withholding and estimated tax payments fell short of their total 2018 tax liability. Another helpful action from the IRS for freelancers is the agency’s removal of the requirement that estimated tax payments be made in four equal installments (They all needed to be made by Jan. 15, 2019).
If you think you owed an estimated tax penalty for 2018, you don’t have to do anything to request the waiver. The IRS will apply the waiver automatically to the tax accounts of all eligible taxpayers — any individual taxpayer who has paid at least 80 percent of their total tax liability through federal income tax withholding or quarterly estimated tax payments but didn’t claim the special when they filed their 2018 return earlier this year.
The IRS also plans to mail out notices granting this relief to affected taxpayers. If you are eligible for the waiver, you will receive a refund check approximately three weeks after your notice arrives. If you haven’t filed your taxes yet or if your taxes are on extension until October 15, the IRS encourages you to claim the waiver on your tax return if you are eligible.
This estimated tax penalty waiver is good news for freelancers. However, it doesn’t absolve you of the obligation to pay any tax or other penalties that you owe. You may also want to check your withholding for this year to ensure it is accurate for the current tax year.
Jonathan Medows is a New York City based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He offers a free consultation to members of Freelancer’s Union* and a monthly email newsletter covering tax, accounting and business issues to freelancers on his website, http://www.cpaforfreelancers.com — which also features a new blog, how-to articles, and a comprehensive freelance tax guide.
*Jonathan is happy to provide an initial consultation to freelancers. To qualify for a free consultation you must be a member of the Freelancers Union and mention this article upon contacting him. Please note that this offer is not available March 1 through April 18 and covers a general conversation about tax responsibilities of a freelancer and potential deductions. These meetings do not include review of self-prepared documents, review of self-prepared tax returns, or the review of the work of other preparers. The free meeting does not include the preparation or review of quantitative calculations of any sort. He is happy to provide such services but would need to charge an hourly rate for his time.