Mysterious refund?

Some taxpayers are receiving refund checks from the IRS that they didn’t expect.  This is due to the IRS making changes to underpayment penalties during the tax filing season. 


Here’s what happened: prior to the 2019 tax season, the IRS assessed an underpayment penalty on returns for which at least 90% of the tax due hadn’t been paid (through withholding or quarterly payments) prior to filing.  The Tax Cuts & Jobs Act created new withholding tables for 2018, however, and those resulted in a large number of underpayments.

The IRS reacted by reducing the level of minimum payment [before the penalty applies] from 90% to 85% in January, then down to 80% in late March.  Many tax returns had been filed by then, with the penalty assessed and paid. 

The IRS is now refunding the penalties for those who had paid at least 80% of their tax due.  They plan to mail a CP21 notice to each affected taxpayer, then follow up with a refund check.  Please note that this is an automatic waiver of the penalty, and nothing is required of the taxpayer.  There is no need to request penalty relief, contact the IRS, or take any other action.

If you receive a refund check, and you’re not sure why you’re getting money back, check your copy of your 2018 returns.  On Line 23 of Form 1040, you may see a penalty for underpayment.  If the amount on that line matches your refund (less any interest they may have included), you can bet that this is the reason for the refund.  Go ahead and deposit the check! 

If your tax return doesn’t show a penalty there, or the numbers don’t line up, it’s likely something else.  In that case, get in touch with us and we’ll help!