Withholding tax payment fine assessed at time of filing

[berylttax]

Every year I pay enough estimated taxes to be owed a refund or rollover.  Every year, Turbo Tax is applying a small fine for not paying my estimated taxes correctly.  There is never any explanation.  Why does TTax apply this penalty when the total estimated tax payments are always well over the amount owed?  I make quarterly payments that are all reasonably at least a quarter share of anticipated tax liability for that tax year (minus the rolled over amount).  How do I avoid this penalty?

[VolvoGirl]

Haven't you been filling out form 2210 for it?  

You might be able to eliminate it or at least reduce it.  You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you.  It's form 2210.

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

If you have the desktop program you can switch to Forms Mode (click forms in the upper right (left for Mac)) and open the 2210 form.  If the 2210 doesn't show up in the left column, click on Open Forms at the top of the left column.  Type 2210 in the search box and open the 2210 form.  Check box C to let the IRS calculate it.

Form 2210  https://www.irs.gov/pub/irs-pdf/f2210.pdf 

Instructions  https://www.irs.gov/pub/irs-pdf/i2210.pdf 

[JandKit]

Hi berylttax!

The IRS required that estimated taxes are paid as you earn or receive income during the year. If the amount of income tax paid or withheld is not enough, you may need to make estimated taxes. If you don’t pay enough tax through withholding and estimated tax payments, you may be charged a penalty. You also may be charged a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return. The key is that the payments are made timely and regularly. If you receive unequal amounts of income during the year to cause fluctuation in the taxes due, you could fall into this situation.

You don’t have to pay estimated tax for the current year if you meet all three of the following conditions.

• You had no tax liability for the prior year
• You were a U.S. citizen or resident for the whole year
• Your prior tax year covered a 12-month period

Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. 

[berylttax]

Many thanks!  I was not aware of the form 2210.  Can you please clarify that your instructions are for steps on the IRS website and not Turbo Tax?

I always make ample quarterly estimated taxes.  I am not ever late in making them for a quarter.  I am never underpaid.  In fact, there are always large excess payment amounts that I roll over.  I do not use any forms.  I go to the IRS website and click on estimated tax payment as the type of payment I am making.  If the problem is not using form 2210, then certainly I will figure out what I have to do to use it.  Much appreciated.

[VolvoGirl]

My steps are how to fill it out in Turbo Tax.

If you do not pay enough tax, you may have to pay a penalty for underpayment of estimated tax. Even if you are getting a refund you can still owe a penalty for not paying in evenly during the year.  Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. It is included in your tax due or reduces your refund.

I would fill out the 2210 by hand for 2020 to see how it works and if you could have reduced the penalty on 1040 line 38.