On my VA state tax return, there's a line called Addition to Tax. I don't know what this is or why it's there. Can someone explain, please? The same amount shows up on page 1 of the return as Addition to Tax, Penalty and Interest. We used TT last year and paid the amount due by the filing deadline. I imagine this can't be a penalty or interest. Taxes were withheld throughout the year and the amount we owe was calculated. This Addition to taxes is a below-line addition to what we owe.
It's penalty for not paying enough tax during the year thru withholding or estimated tax
Per instructions for VA (link below) - "Line 18 Addition to Tax: Use Form 760C to compute any addition to tax you may owe for underpayment of estimated taxes... You will not owe an addition to tax if each payment is made on time and:
You may have paid the amount due by the filing deadline, but if it wasn't paid on a timely/even basis thru the year up to the minimum 'safe harbor' amount (100% of your 2024 tax, or 90% of your 2025 tax whichever is smaller), then a penalty will be calculated - similar to Fed penalty on Form 2210.
If you had a large income event due to Roth conversion, cap gains etc and did pay estimated tax later in the year just not evenly thru the year, you may be able to reduce or eliminate the penalty by applying the Annualized Income method - for Fed this is under Other Tax Situations / Underpayment Penalty; VA program has a similar section; tho this can be a lot of work and depends on your situation. If you met safe harbor amount - or even had a refund - you can still get a penalty if you didn't pay evenly thru the year and had an underpayment earlier in the year, as the calculation is done quarterly.
https://www.tax.virginia.gov/sites/default/files/vatax-pdf/2024-760-instructions.pdf
It's penalty for not paying enough tax during the year thru withholding or estimated tax
Per instructions for VA (link below) - "Line 18 Addition to Tax: Use Form 760C to compute any addition to tax you may owe for underpayment of estimated taxes... You will not owe an addition to tax if each payment is made on time and:
You may have paid the amount due by the filing deadline, but if it wasn't paid on a timely/even basis thru the year up to the minimum 'safe harbor' amount (100% of your 2024 tax, or 90% of your 2025 tax whichever is smaller), then a penalty will be calculated - similar to Fed penalty on Form 2210.
If you had a large income event due to Roth conversion, cap gains etc and did pay estimated tax later in the year just not evenly thru the year, you may be able to reduce or eliminate the penalty by applying the Annualized Income method - for Fed this is under Other Tax Situations / Underpayment Penalty; VA program has a similar section; tho this can be a lot of work and depends on your situation. If you met safe harbor amount - or even had a refund - you can still get a penalty if you didn't pay evenly thru the year and had an underpayment earlier in the year, as the calculation is done quarterly.
https://www.tax.virginia.gov/sites/default/files/vatax-pdf/2024-760-instructions.pdf
Thank you. Even though my wife had taxes withheld for VA and all of my income was out of state, there were apparently enough other taxable income sources on our federal return that the annual payment (just prior to May 1) were not sufficient to meet the 90% timely criteria (per some state bureaucrat). Seems quite the racket to me. Thanks for the insight though.