topic Should I pay the underpayment penalty? in Get your taxes done using TurboTax

Should I pay the underpayment penalty?

jackkgan — Thu, 08 Oct 2020 04:48:44 GMT

Dear experts, I filed extension this year, and my tax consultant sent the rest of the amount minus the Underpayment penalty of around $400 to IRS with my extension. Now when he is filing my taxes, this comes up in the amount owned in the State summary, but not in the efile. The underpayment penalty of $400 also showed up when I tried the same with TurboTax as well. He says it's ok and that I can pay it if IRS comes back. He told me that I can send the signed and scanned efile form to him and that I can pay that amount online if I really wanted to do that. Is it ok to not pay underpayment penalty? Would there be any penalty if I didn't pay that? Thanks in advance for your advice.

Re: Should I pay the underpayment penalty?

Opus 17 — Thu, 08 Oct 2020 12:51:15 GMT

I agree with your accountant, for two reasons. First, the IRS will always re-bill you for something. You probably owe interest along with the underpayment penalty, and the interest will be re-calculated based on exactly when you pay. The exact under-payment penalty is also only final when calculated by the IRS, and for reasons known only to them, the tax accountant or the software almost never gets it exactly right. So you will almost certainly get another bill anyway with some kind of adjustment.

Second, if this is your first time owing a penalty to the IRS, once you get the bill, you can apply for a one-time waiver of the penalty. Any interest you owe can’t be waived, but it will be recalculated if the penalty is lowered or removed.

There’s not really a separate penalty for not paying the penalty. Any unpaid amounts after April 15 (or July 15 this year), will be charged interest at a variable rate that is currently around 3% APR. If you wait to get a bill for the penalty, the interest will be slightly higher that if you paid it now, but that would only be a few dollars at the current interest rate.

Re: Should I pay the underpayment penalty?

jackkgan — Thu, 08 Oct 2020 05:22:51 GMT

Thank you very much Opus 17! That was super helpful.