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Senate Dems Say More Relief Needed From Underwithholding

FEB. 15, 2019

Senate Dems Say More Relief Needed From Underwithholding

DATED FEB. 15, 2019
DOCUMENT ATTRIBUTES
  • Authors
    Wyden, Sen. Ron
    Schumer, Sen. Charles E.
    Cantwell, Sen. Maria
    Carper, Sen. Thomas R.
    Baldwin, Sen. Tammy
    Durbin, Sen. Richard J.
    Van Hollen, Sen. Chris
    Murray, Sen. Patty
    Whitehouse, Sen. Sheldon
    Markey, Sen. Edward J.
    Cardin, Sen. Benjamin L.
    Menendez, Sen. Robert
    Klobuchar, Sen. Amy
    Reed, Sen. Jack
    Feinstein, Sen. Dianne
    Duckworth, Sen. Tammy
    Cortez Masto, Sen. Catherine
    Stabenow, Sen. Debbie
    Tester, Sen. Jon
    Udall, Tom
    Schatz, Sen. Brian
    Merkley, Sen. Jeff
    Hirono, Sen. Mazie K.
    Leahy, Sen. Patrick J.
    Smith, Sen. Tina
    Heinrich, Sen. Martin
    Peters, Sen. Gary C.
    Murphy, Sen. Christopher
    Hassan, Sen. Maggie
    Booker, Sen. Cory A.
    Brown, Sen. Sherrod Campbell
    Casey, Sen. Robert P., Jr.
    King, Sen. Angus S., Jr.
    Sinema, Sen. Kyrsten
    Manchin, Sen. Joe, III
    Harris, Kamala
    Warren, Sen. Elizabeth
    Sanders, Sen. Bernie
    Blumenthal, Sen. Richard
    Rosen, Sen. Jacky
  • Institutional Authors
    U.S. Senate
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2019-6051
  • Tax Analysts Electronic Citation
    2019 TNT 33-48

WYDEN, SCHUMER & SENATE DEMS: AMERICANS FACING SURPRISE TAX BILLS SHOULD NOT BE PENALIZED FOR TREASURY'S WITHHOLDING MISTAKES

Treasury Cut Withholding in 2018, Resulting in Americans Facing Surprise Tax Penalties this Filing Season, Dems Want Fines Waived for Working Taxpayers Who Underpaid by No Fault of Their Own

February 15, 2019

Washington, D.C. — Senate Finance Committee Ranking Member Ron Wyden, D-Ore., Senate Democratic Leader Chuck Schumer, D-N.Y., along with 38 other Senate Democrats today wrote to the administration calling for the IRS to waive penalty fees associated with surprise tax bills many working Americans are facing due to actions taken by the Treasury in early 2018. Following the enactment of the new Trump tax law, the Treasury Department chose to under-withhold taxes from nearly 30 million taxpayers, according to a GAO estimate, millions more than are under-withheld in a typical year. With tax filing season now underway, there are mounting reports that many Americans who traditionally count on receiving tax refunds are learning they were under-withheld and owe the government money, potentially including penalties for underpayment. This financial shock for millions of taxpayers didn't have to happen. The Treasury had a year to adjust withholding tables to reflect changes in the new tax law, but they rushed out the changes in January 2018, just weeks after the law passed.

“It looks like the Trump Treasury Department spent 2018, an election year, goosing people's paychecks by under-withholding, and it should have been obvious that the bill would come due eventually,” Senator Wyden said. “The Trump administration might want to push responsibility for this issue onto taxpayers, but it's unreasonable to expect working people with busy lives to start the year out by crunching the numbers on their tax withholding with the rigor of a workaholic CPA. This threat that families will face surprise tax bills and penalty fees is another perfect example of how the Trump tax law is unfair to typical Americans. Corporations and the billionaires got huge handouts from the Trump tax law, and working people got a new source of financial anxiety. The Treasury Department needs to waive these penalties for those who underpaid by no fault of their own.”

“Many Americans depend on their tax refund to pay bills and make ends meet — but this tax season, working families will see smaller than expected returns and surprise tax bills because the Trump administration used smoke and mirrors in a shallow attempt to exaggerate the impact of their tax law on middle class families for political reasons. The unacceptable actions by President Trump's Treasury Department, potentially hurting nearly 30 million taxpayers, comes while corporate executives and the wealthiest few continue to enjoy their tax windfall from the GOP's tax scam. Instead of a real effort to address the Trump administration's mess, the IRS is attempting to cut the grass with scissors — when they clearly need a lawn mower. It is incumbent on the Trump administration and the IRS to waive tax penalties incurred as a result of the Administration's actions,” said Senate Democratic Leader Chuck Schumer.

The full letter to Treasury Secretary Mnuchin and IRS Commissioner Rettig can be found here.

February 15, 2019

The Honorable Steven T. Mnuchin
Secretary of the Treasury
U.S. Department of the Treasury
1500 Pennsylvania Avenue NW
Washington, DC 20220

The Honorable Charles Rettig
Commissioner
Internal Revenue Service 
1111 Constitution Avenue, NW
Washington, DC 20224

Dear Secretary Mnuchin and Commissioner Rettig:

Getting a federal income tax refund is the largest financial transaction of the year for tens of millions of working Americans and a key component of annual family budgets. People whose incomes are steady from year to year justifiably expect their tax refunds to remain steady as well. That is why we are concerned that many taxpayers will be shocked to learn during the 2019 tax filing season that instead of receiving the big tax refunds they were promised by the Administration, they instead owe taxes as well as penalties for underpayment. The IRS, in response to a January 3, 2019 letter from Senator Wyden,1 said they will waive penalties for taxpayers who paid estimated taxes in the amount of at least 85 percent of the taxes they owed in 2018 (or 100 percent of the tax they owed in 2017) — down from the normal requirement to pay at least 90 percent of what they owed in 2018 to avoid penalties.2 While this is a step in the right direction, we worry that it is not enough.

We want to reiterate that this potentially nasty tax surprise for many taxpayers did not need to happen. If the Administration had simply left withholding tables untouched, most taxpayers would have had the proper amount of taxes withheld from their pay. Instead, it seems to us, the Administration promised households a huge tax cut and so reduced withholding last year to appear to make good on that promise — at the price of a 2019 tax filing season in which tens of millions of taxpayers discover they are under-withheld for 2018 and have to pay back the phantom windfall to the IRS. In fact, Chairman Neal and Senator Wyden raised this specific concern in a letter early last year to the IRS.3

Senate Democrats are not the only ones sounding the alarm. Early filing season statistics are in and the results are not pretty. The average refund is down 8.4 percent.4 Independent experts are calling for the IRS to provide additional penalty relief to those who have been under-withheld. For example, the American Institute of Certified Public Accountants (AICPA) wrote you on January 28 to say that “the adjusted withholding tables did not account for factors such as the elimination of the personal and dependency exemptions or reduced itemized deductions” and that taxpayers may be under-withheld as a result.5 AICPA suggests waiving penalties for taxpayers who paid 80 percent of what they owed in 2018 or 2017 instead of 85 percent and 100 percent, respectively. AICPA also recommends providing an expedited process for taxpayers to request an abatement of any penalties. This is just one possible approach. To be clear, we are not seeking penalty relief for taxpayers who purposefully understate their incomes or who otherwise attempt to avoid their tax obligations.

Because of the Administration’s 2018 withholding manipulation, we believe the American people are unfortunately in store for a surprise pocketbook reckoning that will require millions to pay higher taxes under the new tax law than what they were promised. The pain caused by the Administration’s tax bill was entirely avoidable. Democrats would have crafted a broad middle class tax cut, but we were cut out of the process. However, we would like to work with the Administration and IRS to spare working families the additional injury of tax penalties when they discover the claim of huge tax refunds was too good to be true.

Sincerely,

Ron Wyden
United States Senator

Charles E. Schumer
United States Senator

Maria Cantwell
United States Senator

Thomas R. Carper
United States Senator

Tammy Baldwin
United States Senator

Richard J. Durbin
United States Senator

Chris Van Hollen
United States Senator

Patty Murray
United States Senator

Sheldon Whitehouse
United States Senator

Edward J. Markey
United States Senator

Ben Cardin
United States Senator

Robert Menendez
United States Senator

Amy Klobuchar
United Stales Senator

Jack Reed
United States Senator

Dianne Feinstein
United States Senator

Tammy Duckworth
United States Senator

Catherine Cortez Masto
United States Senator

Debbie Stabenow
United States Senator

Jon Tester
United States Senator

Tom Udall
United States Senator

Brian Schatz
United States Senator

Jeffrey A. Merkley
United States Senator

Mazie K. Hirono
United States Senator

Patrick J. Leahy
United States Senator

Tina Smith
United States Senator

Martin Heinrich
United States Senator

Gary C. Peters
United States Senator

Christopher Murphy
United States Senator

Margaret Wood Hassan
United States Senator

Cory A. Booker
United States Senator

Sherrod Brown
United States Senator

Robert P. Casey, Jr.
United States Senator

Angus S. Hing, Jr.
United States Senator

Kyrsten Sinema
United States Senator

Jacky Rosen
United States Senator

Joe Manchin III
United States Senator

Kamala D. Harris
United States Senator

Elizabeth Warren
United States Senator

Bernard Sanders
United States Senator

Richard Blumenthal
United States Senator

FOOTNOTES

4See IRS, Filing Statistics for Week Ending February 1, 2019: https://www.irs.gov/newsroom/filing-season- statistics-for-week-ending-february-1-2019.

5AICPA, Penalty Relief Needed for Taxpayers for 2018 Filing Season, letter to Secretary Mnuchin and Commissioner Rettig, January 28, 2019: https://www.aicpa.org/press/pressreleases/2019/aicpa-calls-for- additional-penalty-relief-for-taxpayers-for-2018.html

END FOOTNOTES

DOCUMENT ATTRIBUTES
  • Authors
    Wyden, Sen. Ron
    Schumer, Sen. Charles E.
    Cantwell, Sen. Maria
    Carper, Sen. Thomas R.
    Baldwin, Sen. Tammy
    Durbin, Sen. Richard J.
    Van Hollen, Sen. Chris
    Murray, Sen. Patty
    Whitehouse, Sen. Sheldon
    Markey, Sen. Edward J.
    Cardin, Sen. Benjamin L.
    Menendez, Sen. Robert
    Klobuchar, Sen. Amy
    Reed, Sen. Jack
    Feinstein, Sen. Dianne
    Duckworth, Sen. Tammy
    Cortez Masto, Sen. Catherine
    Stabenow, Sen. Debbie
    Tester, Sen. Jon
    Udall, Tom
    Schatz, Sen. Brian
    Merkley, Sen. Jeff
    Hirono, Sen. Mazie K.
    Leahy, Sen. Patrick J.
    Smith, Sen. Tina
    Heinrich, Sen. Martin
    Peters, Sen. Gary C.
    Murphy, Sen. Christopher
    Hassan, Sen. Maggie
    Booker, Sen. Cory A.
    Brown, Sen. Sherrod Campbell
    Casey, Sen. Robert P., Jr.
    King, Sen. Angus S., Jr.
    Sinema, Sen. Kyrsten
    Manchin, Sen. Joe, III
    Harris, Kamala
    Warren, Sen. Elizabeth
    Sanders, Sen. Bernie
    Blumenthal, Sen. Richard
    Rosen, Sen. Jacky
  • Institutional Authors
    U.S. Senate
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2019-6051
  • Tax Analysts Electronic Citation
    2019 TNT 33-48
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