NC interest penality for under payment being applied in error

[JW54]

The NC tax under payment for tax year 2020 is under $200, why is there a penalty being added with the software.?  This is under the $1000 limit shown on NC form D-422.

[SteamTrain · Accepted solution]

That can happen if you made one or more quarterly estimated tax payments during the year, but didn't make exactly 4 quarterly payments of equal value.

For example:

...... if you would have owed 3,000 to NC (ignoring Quarterly estimates) but then only made the 4th quarter payment of a billion $....there would still be an interest payment applied. Even with a huge refund.   

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So to "possibly" eliminate the interest, you would have to go thru the Annualized Income questions in the State tax section to create the form D-422A.  But even then, the interest might not be eliminated....ir really depends on exactly when during the year your income was received...and exactly when your payments (or withholding) was made.

Example 2:  You perhaps made a huge gain in Jan of 2020, but didn't make an estimated payment to cover it until Dec of 2020.  The annualized income won't eliminate the penalty/interest, because you should have paid for the eventual NC taxes on it during the first Qtr of 2020.....that's what the D-422A determines

[JW54]

Yes, making a proactive one time payment, triggered the interest penalty.  I was able to address this issue by Annualizing the income and tax payments.

Thank you for your reply.