If my 2022 payments exceed my 2021 tax liability upon getting extension, will an underpayment of tax penalty apply if I file at the extended deadline?

Forum|Forum|3 years ago
April 17, 2023
1 reply
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That is, does the "100%" safe harbor for underpayment of estimated taxes apply during the filing extension period? Can someone point to where the answer appears in an official IRS publication?

TurboTax Online

Best answer by DMarkM1

I am still confused. Your first sentence indicates I will be penalized if I owe money for 2022 after 4/18/23. Your second sentence indicates the penalty may be abated if my estimated tax payments exceed 100% of my 2021 tax liability. Which is true: will I be penalized or not penalized if I have met the 100% condition but still owe for the excess above 100%? Then the third sentence indicates I should make additional payments by tomorrow. But why should I make additional payments if I met the 100% threshold for estimated tax payments and there is no penalty? Apologies if I am missing something.

There are two different penalties involved. The first is "Underpayment of Estimated Tax by individuals" penalty and the other is the "Failure to pay" Penalty. The underpayment penalty can be avoided by paying an amount equal to 100% of the prior year tax (or 110% if AGI is over 150K).

However the failure to pay penalty applies when taxes shown or required to be shown on the annual tax return are not paid by the due date.

So if with the extension form 4868 the taxpayer pays enough taxes to meet the 100% (or 110% as applicable) of last year's tax amount then the underpayment penalty is waived. However, if the amount paid by the due date (18 Apr for example) does not cover the taxes reported or required to be reported on the tax return then a failure to pay penalty applies.

Here is a list of penalties for reference.

Mike9241

Level 15

timely payments that exceed 100% of 2021 tax (110% if your 2021 adjusted gross income was

from 2210 instructions

Who Must Pay the Underpayment Penalty code section 6654 look at (b)(2)

https://www.law.cornell.edu/uscode/text/26/6654
In general, you may owe the penalty for 2022 if the total of your withholding and timely estimated tax payments didn't equal at least the smaller of:
1. 90% of your 2022 tax, or
2. 100% of your 2021 tax. Your 2021 tax return must cover a 12-month period.

If your adjusted gross income (AGI) for 2021 was more than $150,000 ($75,000 if your 2021 filing status was
married filing separately), substitute 110% for 100% in (2) above.

however, late payment penalties apply if you don't pay taxes owed by April 18, 2023, regardless of whether you filed an extension or not. The late payment penalty is 0.5% (1/2 of 1%) of the additional tax owed amount for every month (or fraction thereof) the owed tax remains unpaid, up to a maximum of 25%.

Mike9241

joshjtaAuthor

Level 2

I have seen both those quotes but am not sure whether the second quote takes into account the safe harbor exception from the first paragraph. So you are saying that the safe-harbor for estimated tax payments does not apply to any tax liability in excess of the prior year tax liability that holds during the filing extension period? I have seen some articles online that interpret the rules otherwise, such that one can avoid penalties by just making sure any extension payment plus any previous payments cover up to the previous year's tax liability.

AmyC

Level 15

If you owe any money, there will be a charge of interest just because it was not paid by the deadline of 4/18/2023. The penalties may be abated if you almost paid enough as explained above between withholdings and estimated payments for 2022. You definitely want to make any additional payments to prevent penalty by the payment deadline of 4/18/2023. You can make payments here.

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