TurboTax Deluxe 2022 Desktop - Incorrect calculation of underpayment penalty for Maryland state and local taxes

[mrk06]

I am using TurboTax Deluxe 2022 on a Windows desktop. It appears to incorrectly calculate the penalty for underpayment of Maryland state and local taxes. On 2/23/2022, Maryland government extended the deadline for payment of estimated taxes for Q1 and Q2 of 2022 to 7/15/2022:

"Effective February 23, 2022, the due dates for the first and second quarter individual income tax estimated payments for tax year 2022 have been extended to July 15, 2022."

Accordingly, I made the combined estimated tax payment for Q1 and Q2 of tax year 2022 on 7/13/2022, i.e. before the extended deadline. However, TT apparently considers these payments late, i.e. not made before their respective non-extended deadlines (4/15/2022 for Q1 and 6/15/2022 for Q2). So TT incorrectly attributes both payments to Q3, together with the Q3 payment I made on 9/13/2022 (before the non-extended 9/15/2022 deadline). Consequently, TT creates a Maryland Form 502UP and calculates that I owe an underpayment penalty, which I do not.

This is a BUG in TT. When should we expect a fix?

[Edit1]

To illustrate the bug, let's assume that the filer had $4,000 of Maryland state + local taxes withheld on the 2022 W-2, and also made 4 quarterly estimated tax payments of $200 each, with the Q1 and Q2 payments made on 7/15/2022 (extended deadline, as described above), Q3 payment on 9/15/2022 and Q4 payment on 1/15/2023 (both non-extended deadlines).

Then the proper calculation of tax payments per quarter on the MD Form 520UP is (note that the quarterly amounts are cumulative:(

Q1 $4000 * (1/4) + $200 = $1200

Q2 $4000 * (2/4) + 2 * $200 = $2400

Q3 $4000 * (3/4) + 3 * $200 = $3600

Q4 $4000 * (4/4) + 4 * $200 = $4800

But instead, TT calculates the following:

Q1 $4000 * (1/4) + (zero estimated payment) = $1000

Q2  $4000 * (2/4) + (zero estimated payment) = $2000

Q3 $4000 * (3/4) + 3 * $200 = $3600

Q4 $4000 * (4/4) + 4 * $200 = $4800

This may result in an underpayment penalty incorrectly calculated for Q1 or Q2 or both.

[Edit2]

One temporary workaround might be to enter non-extended dates for Q1 and Q2 estimated tax payments; this way, TT should not calculate the incorrect penalty. However, in case of an audit, these dates would not much the actual payment date in the filer's records. So this is not a permanent solution.

[mrk06]

To the Employee Tax Experts @LindaS5247 @AbrahamT @JosephS1 @TomK2023 @HopeS :

Could you please look into this TT bug and advise if a fix is in the works and if so what the ETA of it is? I am due a substantial refund of Maryland state + local taxes, and this bug is blocking me from filing the return.

[AmyC]

I would like to take a deeper look at this. However, I need a diagnostic file which is a copy of your tax return that has all of your personal information removed. You can send one to us by following the  directions below:

TurboTax Online:

Sign into your online account.

Locate the Tax Tools on the left-hand side of the screen. 

A drop-down will appear. Select Tools  

On the pop-up screen, click on “Share my file with agent.”

This will generate a message that a diagnostic file gets sanitized and transmitted to us.

Please provide the Token Number that was generated in the response.

TurboTax Desktop/Download Versions:

Open your return.

Click the Online tab in the black bar across the top of TurboTax and select “Send Tax File to Agent”

This will generate a message that a diagnostic copy will be created.  Click on OK and the tax file will be sanitized and transmitted to us.

Please provide the Token Number that was generated in the response. 

[mrk06]

@AmyC 

There is no way I will be submitting a copy of my tax return to you or any agents. Given the bugs present in TT, I do not trust that "sanitization" would remove all of my personal and other sensitive information.

Instead, you should create a simple test tax return from scratch to reproduce the TT bug. Start with a single filer with one W-2 with insufficient withholding of Maryland tax. Add four quarterly estimated Maryland tax payments on non-extended due dates (4/15/2022, 6/15/2022, 9/15/2022 and 1/15/2023) that together with the W-2 withholding result in no tax due and underpayment penalty assessed. Then change the estimated tax payment dates for Q1 and Q2 to the extended due date of 7/15/2022 and see how this causes the Maryland Form 502UP to be generated and the underpayment penalty calculated in the PDF of the return saved by TT.

[AliciaP1]

This is not a TurboTax issue.  You misunderstood the extension information because the extended deadlines did not apply to the estimated taxes paid.  So, the underpayment penalty calculated by TurboTax in your return is correct.

Per the MD Tax Alert 02-29-2022A:

The extension does not impact the due dates of tax year 2022 quarterly estimated payments. Those due dates are April 15, 2022, June 15, 2022, September 15, 2022, and January 15, 2023 for calendar year filers. For individuals who file on a fiscal year basis, quarterly estimated payments are due by the 15th day of the 4th, 6th, 9th, and 13th months following the beginning of the fiscal year. 

See MD Tax Alert for full details.

@mrk06 

[mrk06]

@AliciaP1 

I am sorry, but it is you who misunderstood the rules. There is no " MD Tax Alert 02-29-2022A" as you claim (for one, there were only 28 days in February 2022). Please carefully read the correct MD Tax Alert 02-23-2022A. I already provided a link to it, but here it is again:

https://www.marylandtaxes.gov/forms/Tax_Publications/Tax_Alerts/Income_Tax_Alert_02_23_2022A.pdf

The link to this alert is also posted on the MD Tax Alert webpage, in the "Income Tax Alert" section (please note that this alert was not superseded by a subsequent one, so it remains in force):

https://www.marylandtaxes.gov/pros/tax-alerts/index.php

The 2/23/2022 alert states in its first paragraph (I already quoted the highlighted sentence in the original post):

"This alert supersedes the previous alert issued 01-19-2022. It has been updated to rescind the statement
that the due dates for the quarterly estimated payments for tax year 2022 individual income tax remain
unchanged. Effective February 23, 2022, the due dates for the first and second quarter individual income tax estimated payments for tax year 2022 have been extended to July 15, 2022."

In the last paragraph, it also states:

"Note: The following statement is rescinded effective February 23, 2022, as it is superseded by Tax Alert
02-23-022B. The extension does not impact the due dates of tax year 2022 quarterly estimated
payments. Those due dates are April 15, 2022, June 15, 2022, September 15, 2022, and January
15, 2023 for calendar year filers. For individuals who file on a fiscal year basis, quarterly
estimated payments are due by the 15th day of the 4th, 6th, 9th, and 13th months following the
beginning of the fiscal year."

Clearly, you missed the "rescinded" part highlighted in bold above.

If you still think there is no bug in TT, please prove it. Otherwise, please let us all know when Intuit will provide a fix.

[mrk06]

Update:

Last week, I spent a significant amount of time on the phone with TT customer support. They promised to post a description on the "vine," which apparently is an internal forum for all their agent colleagues. I asked for a ticket to be submitted to TT Engineering, since this BUG is a blocking issue, preventing filing of the tax returns without the incorrect underpayment penalty. But I am not sure that such a ticket was actually produced and filed.

Could one of the Employee Tax Experts @MonikaK1 @SantinoD @SharonD007 please help us by confirming the ETA of a fix for this TT bug?

[mrk06]

Update:

TT has just automatically downloaded and installed a 3/1/2023 update for Maryland. However, this BUG has not been fixed.

As temporary solution, I set the estimated tax payment dates to 4/15/2022 for Q1 and 6/15/2022 (nominal, non-extended deadlines), which results in the MD Form 502UP not being generated by TT and no underpayment penalty calculated.

When I then set the Q1 payment date to the actual 7/13/2022, there is no change. But when I then set Q2 payment date to the actual 7/13/2022, the MD Form 502UP is generated and a penalty is calculated. However, the MD government did extend the Q1 and Q2 payment deadlines both to 7/15/2022, so this clearly is a BUG in TT:

"Effective February 23, 2022, the due dates for the first and second quarter individual income tax estimated payments for tax year 2022 have been extended to July 15, 2022."

Would the Employee Tax Experts please tell us when this BUG will be fixed? It is blocking my filing of the MD tax return and, consequently, the substantial refund I am due.

@JosephS1 @AbrahamT @RalphH1 @SharonD007 @MonikaK1 @AliciaP1 @AmyC 

[CarissaM]

Please click here to sign up for a notification once this issue is fixed in the software. We are aware of this and working to get it corrected. @mrk06 

[mrk06]

@CarissaM 

Thank you for letting us know. However, this issue is erroneously marked as "SOLVED" while the bug is still present in the latest TT (with all the latest updates automatically installed):

[db129]

Hi,

I am impacted by this problem as well.  Please provide a fix.  Maryland did not help by failing to update 502UP for the 2022 tax year.  I expect many to be impacted by this issue.

[AnnetteB6]

Just to clarify, the issue described is still in the process of being corrected.  

The TurboTax help article below offers a place to enter your email address to be notified when the correction has been completed.  The 'Solved' designation on the article itself does not indicate that the problem has been solved.  When the problem has been solved, the link below will no longer be active to allow email registration.

Why am I seeing interest charged on my MD Form 502UP?

@mrk06 

@db129 

[mrk06]

@AnnetteB6 

With the automatic Maryland update to TT dated 3/8/2023, the issue appears to be solved: when I change the Q1 estimated tax payment date from the placeholder 4/15/2022 to the actual 7/13/2022, and Q2 payment date from 6/15/2022 to 7/13/2022, TT no longer generates an MD Form 502UP or incorrectly calculates an underpayment penalty.

However, contrary to what you stated, the registration for the notification of a fix is still active at:

Why am I seeing interest charged on my MD Form 502UP? 

[mrk06]

Update:

I just got an email from Intuit saying that the issue has been resolved in the latest update of both the TT desktop and online versions. However, upon starting TT, there were no updates available. So, most likely, as described in the previous post, the issue had already been fixed in the 3/8/2023 update.

But there is a new bug in the desktop version. After the aforementioned checking for updates, I simply closed TT without doing anything with my tax return. The program crashed: