I am being hit with an underpayment tax penalty. If I plan to submit a waiver request, should I still include it in my tax filing & pay the penalty now?

[mbk6784]

If so, would I be soliciting a refund for the amount from the IRS? If I don't include the penalty in my filing, is the penalty susceptible to accrue interest while I wait on the waiver request decision? How do I submit Form 2210 with my electronic filing through TurboTax online?

[Vanessa A]

Yes, you can request the waiver now with your tax return.  If you meet the qualifications for the penalty waiver, then you do not need to include the amount with your return.  TurboTax will remove the penalty based on the information entered in the form. 

To generate form 2210 select the following:

1. Other Tax Situations
2. Underpayment Penalties

The underpayment may be avoided if:

• You paid 90% of the tax that you owe for the current year.  
• If the current taxes paid are equal to 100%, (110% for higher incomes) of your taxes owed the prior year.  
• The IRS also says you can probably avoid the penalty if the amount you owe is less than $1,000.
• To avoid this situation, it's recommended that you adjust your W-4 with your employer, or pay estimated taxes. 

For more information see, Guide to IRS Tax Penalties: How to Avoid or Reduce Them.

[mbk6784]

Thank you Vanessa,

This partly answers my question in that I should not include the penalty fee in my filing.

The part I am still not sure about is how to include Form 2210 with the electronic filing, requesting a waiver (which would mean Box A needs to be checked within Part 2 of the form).  I am requesting a waiver based on the ‘First Time Abatement’ qualifications, but this is never something that is asked by TurboTax online.  All of the prompts that I am asked don’t apply to me.

[JamesG1]

IRS form 2210 does not address First Time Abatement and Relief.

If you have a clean record with the IRS over the past few years, you might be able to make a tax penalty disappear through the IRS’s First-Time Abatement program. This type of relief can be applied regardless of the amount of your penalty.

A first-time abatement waiver is only available for the failure-to-file, failure-to-pay, and failure-to-deposit penalties. So, for example, your penalty might be eliminated if you failed to file your federal personal income tax return by the due date. You can also seek relief if you’re penalized for failing to pay any income tax you owe when they’re due. Employers who don’t make timely or proper employment tax deposits can seek first-time penalty abatement, too.

You can request a waiver even if you haven't paid all the tax you owe yet, but any failure-to-pay penalty will continue to increase until the tax is completely paid.

See this TurboTax Help.

[mbk6784]

Thanks James,

To clarify, I haven’t failed to file, pay or deposit penalties.  My only ‘failure’ is that I didn’t have enough taxes withheld from my paychecks in 2024.  Does this mean I don’t qualify for the First Time Abatement and Relief?

And assuming I do qualify, do I need to contact the IRS about this directly since it doesn’t appear Form 2210 (or Turbo Tax for that matter) addresses this?

[JamesG1]

A first-time penalty abatement may be applied to more than one tax year.  I have acquired this abatement for clients by calling the IRS directly.  Make sure that you ask for the year in question and the prior three years.  A taxpayer may only receive the abatement once.

The abatement is only available for:

• the failure-to-file (code 166), 
• the failure-to-pay (code 276), and 
• the failure-to-deposit penalties (941's).

Use IRS form 2210 to see if you owe a penalty for underpaying your estimated tax.  There are some situations in which you must file the form to request a waiver.