Overview
Title
To amend the Internal Revenue Code of 1986 to allow individuals to avoid a penalty for failure to pay income tax by timely paying 125 percent of the income tax liability for the prior year.
ELI5 AI
H. R. 990 wants to help people avoid paying extra money because of late taxes by letting them pay 125% of last year's taxes by the deadline. But they can't do this if they missed last year's tax filing or if last year's taxes were for less than a year.
Summary AI
H. R. 990 aims to amend the Internal Revenue Code of 1986 to help individuals avoid penalties for not paying their income taxes on time. To do this, the bill allows individuals to avoid such penalties if they pay at least 125% of their previous year's income tax bill by the tax deadline. This rule doesn't apply if the individual didn't file a tax return for the previous year, filed late, or if the previous tax year was shorter than 12 months. The bill will be effective for tax years starting after December 31, 2024.
Published
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Bill Statistics
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AnalysisAI
The proposed legislation known as H.R. 990 seeks to amend the Internal Revenue Code of 1986. The primary aim of this bill is to allow taxpayers to avoid penalties for failure to pay income tax if they pay 125% of their previous year's tax liability by the due date. This effort is introduced as part of the Simplify Automatic Filing Extensions Act or SAFE Act. It reflects an attempt to simplify tax compliance and provide a form of relief or safeguard for taxpayers who may not fully meet their current year obligations on time but who have demonstrated a history of tax payment.
General Overview
The bill proposes a notable change to the current tax regulations by introducing a rule where individuals can bypass penalties on late tax payments if they have paid a certain percentage of their last year's tax by the due date this year. The specific mechanism outlined requires a payment of 125% of the previous year’s liability, which should be made by the prescribed deadline. There are exceptions, notably for those who either did not file a return the previous year, filed for a year shorter than 12 months, or failed to make necessary payments when filing the current tax return.
Significant Issues
There are several significant issues to consider regarding this legislation:
Complex Language: The language used in the bill is intricate, involving multiple subparagraphs and subsections. This complexity may pose a challenge for individuals without a tax or legal background, potentially leading to confusion regarding their obligations and rights.
Burden on Taxpayers: The requirement to pay 125% of the previous year's liability could be burdensome, especially for those whose financial situations have changed significantly. For instance, a taxpayer experiencing financial hardship might find it difficult to meet this increased payment, which could lead to additional financial strain.
Broad Impact on Taxpayers: The bill does not explicitly account for individuals with variable incomes or those experiencing significant life changes, such as unemployment, which could inadvertently penalize these taxpayers and lead to unintended consequences.
Joint Returns Complexity: The provisions regarding joint returns are particularly complex, with different rules depending on whether individuals filed jointly in the previous or current tax years. This complexity can result in misunderstandings and compliance issues for couples.
Potential Impact
Broad Public Impact
For the general public, this bill could provide a reasonably straightforward safeguard against penalties, encouraging taxpayers to stay in compliance with the IRS while possibly smoothing cash flow for the self-employed or those with fluctuating incomes. This flexibility might benefit individuals in improving their financial planning and could reduce stress associated with tax payments.
Specific Stakeholders
Taxpayers with Stable Income: For those with stable income levels, this bill might serve as a beneficial mechanism, allowing them to avoid penalties by simply basing their payments on the previous year's tax obligations.
Individuals with Fluctuating Incomes: Those with variable incomes might struggle under this regulation, as their tax liability might change significantly from year to year, potentially making this "safety margin" payment burdensome.
Couples Filing Jointly: The intricacies related to joint return filing will demand attention from couples, necessitating perhaps more advice from tax professionals, which could increase administrative and advisory costs.
The proposed legislation offers a practical approach to mitigating penalties for the late payment of taxes by introducing a mechanism directly tied to past tax liabilities. However, its complexity and the added financial requirement may detract from its accessibility and desirability for many taxpayers, particularly for those experiencing significant income variability or economic hardship. Ensuring that taxpayers understand this option and its implications will be essential for its effectiveness.
Issues
The requirement for individuals to pay 125% of the previous year's tax liability (Section 2) might be seen as potentially burdensome, especially for individuals whose financial situation has changed significantly year over year. This could lead to financial strain or unintended penalties for taxpayers, raising significant financial and ethical concerns.
The language used in Section 2 is complex, with numerous references to subparagraphs and subsections, making it difficult for individuals without a legal or tax background to understand the provisions and their applicability, potentially causing confusion and compliance challenges.
Section 2 does not explicitly address how taxpayers with variable income or those experiencing significant life changes such as unemployment might be affected, which could lead to inadvertent penalties. This oversight has political and financial implications for affected taxpayers.
The clause regarding joint returns in Section 2 is complex and dependent on different circumstances such as whether a taxpayer is filing jointly or separately in different years. This might lead to misunderstandings, potentially resulting in penalties.
Section 2 does not mention how taxpayers can access guidance or resources to better understand these provisions, which can lead to compliance challenges and might result in inadvertent penalties due to misinformation.
The bill lacks clarity in Section 1 by only providing a short title without detail, making it unclear what the overall objectives or implications might be. This lack of transparency can be a political concern as it limits public understanding of the bill's intent.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The first section of this Act gives it two titles: it can be called the “Simplify Automatic Filing Extensions Act” or simply the “SAFE Act.”
2. No penalty for failure to pay income tax for individuals who timely pay 125 percent of income tax liability for prior year Read Opens in new tab
Summary AI
The section amends the tax code to state that individuals who pay 125% of their previous year's income tax by the due date won't face a penalty for late payment. However, this doesn't apply if the individual didn't file a return for the previous tax year, if that year was shorter than 12 months, or if they didn't make additional payments when filing their current return on time.