H.R.990 - Simplify Automatic Filing Extensions Act; SAFE Act (119th Congress)
Summary
H.R.990, the Simplify Automatic Filing Extensions Act (SAFE Act), proposes an amendment to the Internal Revenue Code of 1986. The bill aims to prevent penalties for individuals who fail to pay income tax if they timely pay 125% of their prior year's income tax liability. This applies to taxable years beginning after December 31, 2024.
The bill includes stipulations regarding filing requirements, short taxable years, and joint returns to ensure proper implementation and prevent abuse of the provision. It also specifies that the exception is contingent on additional payments being made with a timely filed return.
The bill is sponsored by Ms. Chu and Mr. Carey and was introduced in the House of Representatives, referred to the Committee on Ways and Means.
Expected Effects
The primary effect of the SAFE Act would be to provide a safe harbor for taxpayers who may underestimate their income tax liability for a given year. By paying 125% of the previous year's tax, individuals could avoid penalties for underpayment.
This could reduce anxiety and potential financial strain for taxpayers, especially those with fluctuating incomes or complex tax situations. It may also simplify tax planning for some individuals.
However, it could also lead to some taxpayers overpaying their taxes, requiring them to seek refunds, and could potentially reduce government revenue in the short term.
Potential Benefits
- Penalty Avoidance: Individuals can avoid penalties for underpayment of income tax by paying 125% of the prior year's liability.
- Simplified Tax Planning: Offers a straightforward method for taxpayers to estimate and pay taxes, reducing complexity.
- Reduced Financial Stress: Provides a buffer for those with fluctuating incomes, minimizing the risk of penalties.
- Automatic Extension: Simplifies the process of obtaining an automatic filing extension.
- Timely Payments: Encourages taxpayers to make timely payments.
Most Benefited Areas:
Potential Disadvantages
- Potential Overpayment: Taxpayers might overpay, requiring them to file for refunds.
- Complexity for First-Time Filers: The 125% rule might not be applicable or clear for first-time filers or those with significant income changes.
- Administrative Burden: The IRS may face increased administrative burden in processing refunds due to overpayments.
- Revenue Impact: Potential short-term reduction in government revenue due to overpayments and later refunds.
- Limited Applicability: The exception does not apply if the individual fails to file a return or had a short taxable year in the prior year.
Constitutional Alignment
The bill appears to align with the general welfare clause of the Constitution, as it aims to simplify tax compliance and reduce financial burdens on individuals. Specifically, the 'promote the general Welfare' clause in the preamble suggests that laws should aim to improve the well-being of citizens.
Article I, Section 8, Clause 1 grants Congress the power to lay and collect taxes. This bill modifies the application of penalties related to those taxes, which falls under Congress's authority.
The bill does not appear to infringe upon any specific constitutional rights or limitations.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).