Michigan Tax Liability - Meaning of question by TTax

[scottbfreeman]

TTax asks:

"If your AGI for 2023 exceeded $150,000 (or $75,000 if married filing separately), enter 110% of your 2023 Michigan tax. If you did not have a tax liability last year, enter zero."

Screenshot of question

My AGI exceeded that amount but I overpaid Michigan and got a MI refund. Is the "liability" referring to owing additional tax beyond Quarterly & Carried forward amounts for the tax year or just having any tax liability for the year?

[KeshaH]

The liability would be the actual amount you owed before accounting for your tax withholding. 

On your 2023 tax return, use the amount on line 20 less the amounts on lines 25 through 29 (not including 27a).

[scottbfreeman]

Thanks for the reply but things are still not clear for me. The instruction from TTax is to enter 110% of the 2023 tax. I made all the quarterly payments suggested by TTax. I overpaid my 2023 State amount due and credited the over-payment amount to 2024. Entering either the amount on line 20 from 2023 or 110% of that creates a penalty and interest charge for 2024. The question from TTax doesn't really make sense if your suggestion to enter the amount on line 20 from 2023 is correct. Anyone with an AGI exceeding $150,000 is going to have a tax liability. If more than that liability was paid on time, and in the amounts suggested by TTax, there should not be a penalty for underpayment. Can you explain further how paying the estimated payments on time results in underpayment?

[KeshaH]

You're getting an underpayment penalty on your 2024 return because you either 1) have a balance of at least $500 due on your 2024 Michigan return, or 2) you didn't make your 2024 estimated payments on time. This penalty is not related to your 2023 tax return.

You can avoid the underpayment penalty on your 2024 return by paying - for the 2024 tax year - the lesser of 90% of your 2024 tax liability or 110% of your 2023 tax liability. This is why TurboTax is asking for your 2023 liability (safe harbor). It's not assessing a penalty on your 2023 return. Since you paid your 2023 estimates on time and had an overpayment, you were not subject to a penalty for 2023. 

This penalty on your 2024 return is strictly related to your 2024 tax liability and payments.

You will need to use the amount from line 20 on your 2023 MI-1040 less lines 25–29. Multiply this amount by 110%, this is what you'd enter in that box. If you didn't pay this much in 2024, you'll be subject to the underpayment penalty.

[scottbfreeman]

Thanks so much. It's a bit to digest.

Scott