Maryland Tax computation Notice 205 Interest for underpayment of estimated tax

[Weihong100]

I received income tax computation notice from Maryland state. I have overpayment but they calculated that there is interest for underpayment of estimated tax, so my refund is less than my overpayment after paying for the interest. I am very confused about this. My MD withheld plus the estimated tax payment is more than my tax, why I get charged for interest. For example, my withheld was 21K and I also paid $5k estimated tax, my tax was 25k, so I should be getting 1K refund, but instead they charged me for $80 interest. Any thought? 

[baldietax]

not sure MD specifics so check the tax code but this can happen when estimated tax wasn't paid timely even if you overpaid.... if you didn't pay the estimated tax evenly thru the year to meet the safe harbor amount (lesser of 90% of 2024 tax or ?110% of 2023 tax), you may be assessed an underpayment penalty for Q1, Q2 etc, even tho by the end you paid the full amount or had a refund.  An overpayment earlier in the year will carry forward to eliminate underpayment later in the year, but no amount of overpayment later in the year can eliminate an underpayment earlier in the year but stops the penalty interest accruing.

in your example you need to have paid 25000x90%=22500 (assume this is the lesser safe harbor option), less withholding 21000 = 1500 ES, $375 due per quarter.  If you didn't pay $5k til Q4 day, you still would incur underpayment penalty for $375 for Q1-3.

[Weihong100]

Thank you for responding and sharing this information. That could be the explanation for the interest charged. I paid the estimated tax once in Q4 rather than in each quarter.