topic Re: Underpayment Penalty in Get your taxes done using TurboTax

Underpayment Penalty

Skives19 — Thu, 30 Dec 2021 18:57:41 GMT

I may have underpaid my federal and Michigan state taxes for 2021. I didn’t realize I needed to make quarterly estimated payments if I knew I would owe at the end of the year. The last quarterly estimated payment is due January 15, 2022. Is there anything I can do by then to avoid paying a penalty on my underpayment?

I read the penalty is waived if I paid 100% of last years taxes. Does that mean if I paid my tax liability of last year in this years taxes. If so I paid 300 less this year (2021) in federal tax than last year (2020).

Re: Underpayment Penalty

Mike9241 — Thu, 30 Dec 2021 19:34:11 GMT

estimated taxes are due on a quarterly basis. so paying 100% of your estimated taxes now will not avoid the penalties for the 1st 3 quarters. but read the following

There will be no federal penalties for not paying in enough taxes during the year if withholding
1) And timely estimated tax payments equal or exceed 90% of your 2021 tax
or
2) And timely estimated tax payments equal or exceed 100% of your 2020 tax (110% if your 2020 adjusted gross income was more than $150K)
or
3) the balance due after subtracting taxes withheld from 90% of your 2021 tax is less than $1,000
or
4) your total taxes are less than $1,000

state laws differ

Re: Underpayment Penalty

Skives19 — Thu, 30 Dec 2021 19:44:46 GMT

Number 2 is where I am confused. In 2020 we paid $6,668 in federal tax ($6,646 was due so s $22 refund). In 2021 we paid $6,498.20 in federal tax. I’m confused on whether I can make an estimated payment by January 15, 2022 of $300 I could avoid any or all penalties?

Re: Underpayment Penalty

AmyC — Thu, 30 Dec 2021 20:21:56 GMT

I am assuming you believe this year you will owe more than $1,000 to federal. The associated penalty can be waived if you paid it at least as much as your tax bill last year, $6,466. Unless you are higher income, then you need to have paid in $7,311.

You may be able to avoid all penalties. See About Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts. You still have time to pay state and federal. Most states and the IRS accept payments online.

Re: Underpayment Penalty

Skives19 — Thu, 30 Dec 2021 20:25:48 GMT

Yes maybe $2,575 federal and $708 state. I haven’t made any estimated payments this year. Should I pay all the underpayment or can I just pay $300 to make it above what I paid in federal taxes last year (2020)? This is good as long as I do it by January 15, 2022 right?

Re: Underpayment Penalty

AmyC — Thu, 30 Dec 2021 21:01:09 GMT

Yes, as long as you meet the Form 2210 requirements, you are fine. Pay the $300 to put you over last year's amount, unless you are higher income and need to pay more. See Make a Payment to pay.

Re: Underpayment Penalty

Skives19 — Thu, 30 Dec 2021 21:05:46 GMT

How does this work with a penalty on state underpayment? How do I need to pay the state to avoid a fee?

Re: Underpayment Penalty

DaveF1006 — Thu, 30 Dec 2021 21:58:00 GMT

You will need to send in a payment to your state by January 18, 2022 to avoid an estimated tax penalty. To make a payment, you will need a payment voucher to make your estimated tax payment. Here is a link to download the payment voucher to send in.

Re: Underpayment Penalty

Skives19 — Thu, 30 Dec 2021 22:21:30 GMT

Do I pay all of the underpayment or how much?

Re: Underpayment Penalty

AmyC — Thu, 30 Dec 2021 22:23:18 GMT

You need to follow the instructions from Michigan.gov:

The Michigan Department of Treasury follows the Internal Revenue Service (IRS) guidelines for estimated tax requirements. Based on the IRS estimated income tax requirements, to avoid penalty and interest for underpaid estimates, your total tax paid through credits and withholding must be:

90% of your current year's tax liability or
100% of the previous year's tax liability or
110% of your previous year's tax liability if your previous year's adjusted gross income is more than $150,000 ($75,000 for married filing separately)

Penalty is 25% for failing to file estimated payments or 10% of underpaid tax per quarter. Interest is 1% above the prime rate.

Re: Underpayment Penalty

Skives19 — Thu, 30 Dec 2021 23:35:46 GMT

My underpayment may be from sports betting online. Does this make anything different as to what I need to do?

Re: Underpayment Penalty

AmyC — Fri, 31 Dec 2021 00:14:36 GMT

You will avoid the penalties if you make a large enough payment now. If you have to go through and claim your income by quarter, it could be worse depending on when you won what. Not to mention, a pain to sort all income by each quarter.

Re: Underpayment Penalty

Skives19 — Fri, 31 Dec 2021 10:28:53 GMT

Thank you for your help.

how will they know what quarterly payment I am making? Should I make 4 payments that equal what I may owe to both the irs and state?

Re: Underpayment Penalty

Vanessa A — Mon, 03 Jan 2022 15:33:19 GMT

The payment you make now cannot be assigned to a specific quarter. You only need to make one payment to the IRS and one payment to the state. Both payments will be applied to your overall taxes paid, but you cannot go back and say this payment was meant for the first quarter and this payment was meant for the second quarter. Payments are applied in the quarter they are made.

If you do receive a penalty you can file form 2210 with your federal taxes to request the penalty be waived. This form is found by clicking>> Other Tax Situations>>Additional Tax Payment in TurboTax. If you file this form you will need to print and mail your return as it cannot be e-filed.

For your Michigan state return, if you incur a penalty, you would need to Request a Penalty Waiver from the state by following the instructions in the link.

Re: Underpayment Penalty

Skives19 — Mon, 03 Jan 2022 15:49:24 GMT

Will turbo tax be able tell me if I am getting a penalty and how much it is or do I have to wait for the IRS and state to decide?

Re: Underpayment Penalty

Vanessa A — Mon, 03 Jan 2022 16:36:29 GMT

Yes, TurboTax will tell you if you are getting a penalty and how much it is.

Re: Underpayment Penalty

DougHo — Fri, 14 Jan 2022 04:36:15 GMT

Are you sure TurboTax tells you proper penalty amount for current year? I can't seem to make that happen. My Tax Summary, History, and Two-Year Comp. all show $2 penalty and I can't make sense of TurboTax's 2210 because it has things like column (a) with date 7/15/20 and blank column (b) - it is nothing like the columns at

https://www.irs.gov/pub/irs-pdf/f2210.pdf

I think the problem may boil down to TurboTax doubling up 11(a) and/or using blank 11(b) but it is hard to be sure with all the mess of lines which follow 11.

Re: Underpayment Penalty

Mike9241 — Fri, 14 Jan 2022 04:45:38 GMT

looking at the form even though it says 2021 the dates are messed up so this form is not yet working even after the last update. it even says do not file.