Our income is not static so when annualizing we applied our 1st quarter withholding to the 1st quarter and based on the tax tables that was more than adequate to cover 1st and 2nd quarter earnings. The annualized calculations multiply the 1st quarter earnings in such a way that the 1st quarter is taxed at a much higher rate of tax than is owed so it generates a penalty that is then compounded. We took our earnings and subtracted the entire standard deduction, as that is how it is shown on the annualized sheet, applying the deduction at the beginning of the year so that it should have offset any estimate deficiency or penalty. We made estimated payments in the 3rd and 4th quarter commensurate with our income and are showing that we overpaid by about 8% and are getting a refund. How can we remove the penalty that we shouldn’t owe? Deleting the form does not work as it calculates a larger penalty in the background by not properly applying our 1st quarter withholding.
