Federal refund and a penalty-why

[arejfour]

     I'm self employed so I pay estimated taxes every quarter, ahead of time, via IRS direct. Being self employed I have to make an educated guess as what my income will be-usually I'm fairly close. For the year 2023 I paid 2,500/2,500/2,500/5,000. What I don't understand, on a $380 refund, I was assessed a $12.00 penalty-for what? If it makes any difference I got refund from the state. Can anybody offer me an explanation about the penalty? Thanks

[AmyC]

Yes that can happen. The government expects you to make payments throughout the year as income is received. For more, see Why am I getting an underpayment penalty if I'm getting a refund?

[SteamTrain · Accepted solution]

For $12 it's not worth the effort to fill in the special forms that might get it reversed (a form 2210AI).

You paid 5,000 in the 4th qtr, suggesting you had some extra year-end income.

The initial default calculations assume all income is received evenly over the eyar....doing this is usually OK for 90% of the situations. But with some folks, especially those with extra year-end income, the default calculation spreads out that income to the first 3 qtrs...and that can result in underpayment for those Qtrs.

The normal fix (if you Really want to attempt it) is to go thru the Underpayment Penalty section Q&A on the Other Tax Situations page, and closely define exactly what income you had each quarter during the year....withholding, deductions, interest, dividends, Cap gains etc.

(and note the dates of the so-called Qtrs....3mos,2mos,3mos,4mos)

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...I've done it once and won't bother again for a penalty less than ~$50 or so.