I paid more than 110% of my 2020 tax liability in estimated taxes. I had a large capital gain in December and greatly increased my next estimated payment as a result of it. TurboTax added a penalty with interest but I thought since I paid 110% of my last year's my liability that I would not be assessed a penalty.
I decided not to include a penalty but to include the following explanation of waiver of penalty (with actual amounts, not XXX, etc.):
I paid more than 110% of my 2020 tax liability in estimated taxes. My total tax last year was $ XXX. TurboTax says the maximum required annual payment based on prior year's tax is $110%XXX. The total of my estimated tax payments for 2021 was $124%XXX. (My underpayment was owing to a surprise sale in December of real estate. I increased my next estimated payment and was hoping to supplement that with another estimated payment but was not allowed to do so because I unknowingly missed the January 15th deadline.)
110% of 2020 tax should prevent any penalty if you paid your estimates timely. are you sure this is an underpayment of tax liability and not something else because there would be no interest computed unless you noted that the balance would not be paid until after 4/18/2022
look at the 2210 and underpayment penalty worksheet to see if you can spot the reason for the penalty.
also, check the carryover worksheet to make sure the correct 2020 tax liability is reported
finally maybe there's a bug in the app
what you see as the interest rate on the underpayment worksheet is really the penalty rate
The U.S. tax system operates as a pay-as-you-go system. What this means is that you must pay your taxes as they occur. For example, If your estimated tax payment for any quarter is less than the amount required for the income earned you will incur an underpayment penalty. This penality is not deleted by any future estimated tax payments even when the estimates exceed the minimum required to avoid a penalty for the quarter. @Mike9241
Yes, @Mike9241 , I had checked my form 2210 before posting and it seemed to be calculating the penalty and interest. I checked out the option for annualizing the income but that was tedious and TurboTax did not fill in the blanks as I feel like it should have since the information is in my return elsewhere.
I'm seriously wondering if I should check the option to not include the penalty and to allow the IRS to calculate it.
I decided not to include a penalty but to include the following explanation of waiver of penalty (with actual amounts, not XXX, etc.):
I paid more than 110% of my 2020 tax liability in estimated taxes. My total tax last year was $ XXX. TurboTax says the maximum required annual payment based on prior year's tax is $110%XXX. The total of my estimated tax payments for 2021 was $124%XXX. (My underpayment was owing to a surprise sale in December of real estate. I increased my next estimated payment and was hoping to supplement that with another estimated payment but was not allowed to do so because I unknowingly missed the January 15th deadline.)
If your total tax last year was less then $1,000, ($xxx) you don't have to make estimated tax payments for this year.
Don't file a paper return unless your e-File is REJECTED.
check the box that says you want IRS to calculate the penalty.
IRS will bill you, ( or not, if there is no penalty)
Thanks but yes it was a lot more. Probably you were misled by the three x's which were not meant to be taken literally as the number of digits in question.