Form 2210 bugs - Tax Year 2021

[phsw]

I got the latest updates yesterday, including the updated Form 2210. I have found 5 problems with how TurboTax is completing Form 2210 on the tax year 2021 deluxe edition for the desktop. The first issue I can work around, and I can override the TurboTax calculations directly in the form for all four of the other issues, but in three of the cases, TurboTax considers it an error and I'm not sure what the consequences are for e-filing my return with these overrides (assuming it even allows it).

1. In the Step-by-Step questions for determining if there's an underpayment of taxes (and the penalty, if so), TurboTax specifies the wrong time periods for specifying your withholding. It asks for the 2nd quarter ending on 7/15 and 3rd quarter starting on 7/16, whereas the dates on the IRS Form 2210 are 6/15 and 6/16 respectively. I can work around this issue by entering data for the 2nd quarter ending on 6/15 instead of 7/15, and the 3rd quarter starting on 6/16.

2. Form 2210AI line 7 says to add line 12b from your 1040 form to your standard deduction. TurboTax did not add line 12b.

3. It's a flaw that TurboTax does NOT ask for qualified dividends by tax quarter, as it does for withholding. It puts the entire year's tax dividends in the last quarter, potentially resulting in higher taxes due in the first three quarters. In this case, I could override the values on the form without TurboTax flagging it as an error. At a minimum, TurboTax should flag this situtation as one you might need to override.

4. TurboTax incorrectly copied the value from Form 2210AI line 27 for Form 2210 Part III line 10 for column a. It did correctly copy the amounts for columns b, c and d. I have no idea where the incorrect figure for column a came from… clicking on the link to the data source shows the correct value for column a.

5. Form 2210 line 11 is wrong for column d. It understated the total of the estimated taxes plus withholding for that quarter. This was the only quarter for which I paid estimated taxes since my withholding was sufficient for the first 3 quarters.

I also have a problem that the TurboTax error check during the Federal Review is asking me to enter missing information for Schedule 8812 Advance Payments received. I don't know if this is related to the Form 2210 issues or not, but I don't have any child dependents, so this form certainly does not apply to me. Also, TurboTax correctly does not include this form in the saved PDF file with all records for my return. So why does the Federal Review think I need it?

[slb22]

I too am being flagged in the federal review process and I have no children or qualifying dependents. Any recommendations for fixes?

[BillM223]

"3. It's a flaw that TurboTax does NOT ask for qualified dividends by tax quarter, as it does for withholding. It puts the entire year's tax dividends in the last quarter, potentially resulting in higher taxes due in the first three quarters."

I wish to understand this. 

TurboTax does ask you for the Adjusted Gross Income for each quarter, and the qualified dividends are in the AGI.

1. Why do you think asking for the AGI is not sufficient?

2. Why do you think that all the year's tax dividends are only in the last quarter?

@phsw

[phsw]

You are correct that the qualified dividends are included in the AGI for each quarter, and so that is included in the figures on Schedule 2210AI Part I line 1. But TurboTax doesn't know how much of that income is due to qualified dividends, which are taxed differently than ordinary income. In my return, in the Forms view, Form 2210AI Part I Capital Gains Tax Computation Smart Worksheet (for figuring the amount of tax due for that quarter) has an entry on line E for column d only (the whole year). This is presumably taken from Form 1040 line 3a, which is the figure for the whole year. The Step by Step interview did not ask me to break down my qualified dividends by tax quarter, so the program wouldn't know how much to enter on line E for the first three tax quarters of the year. I don't know if this would also be an issue for the other lines (A-D, F, and G) of the Smart Worksheet too; those other lines don't apply to my situation.

As a result, the amount of tax TurboTax believes is due for the quarter, as shown on line 14 (just below the Smart Worksheet), is higher for the first three quarters than it should be because the qualified dividends for that quarter are getting taxed at the full tax rate rather than the lower qualified dividends tax rate.

Since TurboTax knows that I had qualified dividends, it would be best if it asked me for the quarterly breakdown and completed line E in the Capital Gains Tax Computation Smart Worksheet accordingly. At a minimum, it should flag it as something that might need correcting during the Federal Review. I was glad that TurboTax allowed me to override the figures in that worksheet and subsequently re-calculated the tax due.

Thanks for asking for clarification. Let me know if you have any additional questions.

[BillM223]

As you know, the income tax is not figured on the AGI, rather, when you have capital gains or qualified dividends, the income tax is calculated on the Qualified Dividends and Capital Gain Tax Worksheet.

So while line 1 on the 2210AI has your Adjusted Gross Income, the values for income tax on line 14 (2210AI) are calculated using the Qualified Dividends and Capital Gain Tax Worksheet. These values flow through to line 27, which is carried to line 10 on Part III of the 2210, as "required installments".

So, in fact, your capital gains and qualified dividends are accounted for in the calculations on the 2210.

See the Instructions for the 2210. Search for "dividends".

[phsw]

BillM223, sorry but I still don't agree that the qualified dividends are accounted for in *each* tax quarter. Yes, it's there at the end, but each tax quarter must be accurate. Otherwise, Turbo Tax might incorrectly decide a penalty is due for underpaying the taxes owed in the first quarter, and it keeps compounding until the qualified dividends are finally included in the tax computation for the last quarter.

The problem is that TurboTax is leaving the columns for the first three tax quarters blank in the Capital Gains Tax Computation Smart Worksheet for Form 2210 Schedule AI, on line E. So it isn't including the qualified dividends in the tax calculation for line 14 columns a, b, and c. To prove this, I modified a copy of my return to actually try it out in Turbo Tax with values that can easily be looked up in the tax tables for validation.

Here's a simple example of what Turbo Tax is calculating for the first tax quarter, for a married couple filing jointly, taking the standard deduction, both over the age of 65 and no dependents.

Enter $10,000 AGI for the first tax quarter (2210AI line 1 column a), which includes $1,000 in qualified dividends. Schedule AI shows that this is annualized to $40,000. The taxable income after the 27,800 standard deduction for 2 seniors is $12,200 (line 13 column a).

This is where the Capital Gains Tax Computation Smart Worksheet for Form 2210 Schedule AI comes into play. As I said before, columns a, b, and c are blank in this worksheet; only column d has an entry for the qualified dividends for the year. In Forms view, I can fill in values in columns a, b, and c for line E, but the Step-by-Step did not ask for the information nor issue any warnings.

1. Don't make any changes to line E. On line 14, you'll see the annualized tax calculated for the first quarter is $1,223. That matches the amount of tax in the tax table for married filing jointly with $12,200 of taxable income (the taxable income before accounting for qualified dividends). The quarterly amount due, on line 21, becomes $275. But the tax due should be lower since $1,000 (or $4,000 annualized) of qualified dividends should have been taxable at a lower rate.

2. Go back to line E, and fill in column (a) with $1000 (the amount of qualified dividends that tax quarter). As a result, the annual tax calculated on line 14 changes to $823. This matches the amount of tax in the tax table for married filing jointly with $8,200 of taxable income (the taxable income less the $4000 annualized qualified dividends). This is what I'd expect since this $4,000 would not be taxed at all at this low level of income when completing the Qualified Dividends and Capital Gain Tax Worksheet. The quarterly amount due, on line 21, becomes $185.

Without manually writing in qualified dividends for each quarter, TurboTax is calculating that $275 is owed for the first tax quarter, whereas only $185 is actually owed. This example used small numbers for the sake of simplicity; the difference could actually be much greater.

[phsw]

slb22, I did find a solution in another thread by user Critter-3 on Jan 16, which worked for me. It said:

EVERYONE will have to answer 2 questions in the Deductions & Credit section in regards to the Child Tax Credit form 8812 even if you did not enter any dependents in the MY INFO section … just follow the interview screens and don't jump ahead. If you miss it then when you get to the REVIEW tab it will require you to go back.

Go to Federal>Deductions and Credits>You and Your Family>Child Tax Credit