Am I eligible for underpayment penalty waiver due to paid family and medical leave?

[stoneage]

Last year, I gave birth to my son and I got 5 months income from Washington state paid family and medical leave, and the income is almost the same as my regular income show in my W2. And so I got 1099G form from the state, but it shows zero federal tax withhold. In this way, my W2 only held around 7 months of my federal tax, and I didn't pay for any federal tax for the other 5 months which comes from 1099G form.

So when I file my tax, I found I need to pay for a $385 underpayment penalty.

But I don't know why the state doesn't hold any federal tax when I got paid from paid family and medical leave. Am I eligible to apply for the penalty waiver for this reason?

Thanks!

[DawnC]

No.  The law allows the IRS to waive the penalty if:

1. You didn't make a required payment because of a casualty event, disaster, or other unusual circumstance, and it would be inequitable to impose the penalty, or
2. You retired (after reaching age 62) or became disabled during the tax year or in the preceding tax year for which you should have made estimated payments, and the underpayment was due to reasonable cause and not willful neglect.

The United States income tax system is a pay-as-you-go tax system, which means that you must pay income tax as you earn or receive your income during the year. You can do this either through withholding or by making estimated tax payments. If you didn't pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of 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.

To review your penalties, make adjustments, or annualize your income.   You can search for penalty and use the Jump to link to get back to this section also.  You may be able to reduce or eliminate the penalty.  

[stoneage]

Thanks! So giving birth and got paid from state family and medical leave doesn't count as the event? But I don't know why state didn't withheld any federal tax before I got paid from them.....there is no way for me to control how much tax they will hold. In this way I only withhold tax for 7 months which cause me get penalty.....

[Vanessa A · Accepted solution]

No, giving birth is neither a casualty even or unusual circumstance.  In order for the state to withhold taxes, you would need to make a request for them to do so.  The state of WA has stated multiple times, they are unsure if the PMFL will be taxable to the individuals, therefore, they would not withhold taxes, when it may not be taxable. 

You would be responsible for contacting the state to have them withhold taxes and if they do not, then you would be responsible for making estimated tax payments to the IRS. You can use a tax estimate like Tax Caster or use the estimated tax planner in the Other Tax Situations section of TurboTax to determine how much withholdings you should have.

In the meantime, if you are unable to pay your taxes in full, you should still file by April 18th, but you can apply for a payment plan from the IRS.  When you get to the end of TurboTax, prior to hitting file, it will give you the option to apply. 

Paid Medical and Family Leave