Form 2210 TY 2021 error

[Rickp973]

No defense necessary. Taxes are complicated. If it’s any consolation, the tax calculation using the dividend and CG worksheet disagrees with the TurboTax form 2210 calculation is in my case. Bottom line is that Form 2210 is a mess and is not being corrected. The bloggers on this issue are rightly frustrated. Continue to demand that intuit correct ALL of the problems with this form, not just the easy ones. I’ve requested a refund. We’ll see what happens. Oh by the way, IRS will hold the user accountable for errors, not TurboTax.

[kevinandlori]

There are several problems with Form 2210 that remain as of March 5:

1. Failure to include 2020 refunds applied to 2021 taxes. 2020 refunds applied to 2021 taxes are not credited as tax payments in any column of Form 2210, Part III Line 11. (Part 2 Box C is checked, Box D is not). Instructions for Line 11 state they should be included: "Include the following payments: Any overpayment from your 2020 return applied to your 2021 estimated tax payments." For those that filed by April 15, the credit should be included in the first quarter for Line 11, but TT fails to include it in any quarter.
2. Failure to include above-the-line charitable contributions. As many have pointed out, Schedule AI, line 7 fails to include any amount on Form 1040, line 12(b) (above the line charitable contributions: up to $300 single / $600 MFJ). Taxes calculated on lines 14(a), 14(b), and 14(c) are therefore slightly higher than they should be. (The deduction is properly included in the final tax calculation in 14(d), even though the taxable income shown on line 13(d) is incorrect.)
3. 3. Tax computation in Schedule AI, line 14 (a), (b), (c). TT assumes that capital gains are one-time events for each quarter, while qualified dividends will continue throughout the year. Consequently, qualified dividends are annualized by multiplying by 4, 2.4, and 1.5 for the first through third quarters in the tax calculation, but capital gains are not multiplied by any factor. For example, if you are married filing joint and have $50,000 in income that includes $1000 in capital gain in the first quarter, TT calculates the taxes on (4*$50,000)-$1000 = $199,000 at regular tax rates and $1000 at 15% tax rates. However, if you have $50,000 in income that includes $1000 in qualified dividends it calculates the taxes on (4*50,000)-4*$1000 = $196,000 at regular tax rates and 4*$1000 = $4000 at 15% tax rates. The underlying assumptions that qualified dividends are recurring (and hence should be annualized) but capital gains are one-time-events (and hence should not be annualized) are reasonable for many, but not all.

TT appears to overstate the taxes on lines 14(a), (b), and (c) for larger amounts of qualified dividends. For example, for MFJ in the 15% qualified dividend tax bracket with $200,000 of taxable income on Line 13 (a), (b), and (d), the taxes on line 14(a), (b), and (c) are too high by 2% of the amount that annualized qualified dividends exceed $27,250. This corresponds to $6812 in the first quarter, $11,354 through the second quarter, or $18,167 through the third quarter.

[kevinandlori]

Please strike the last paragraph of my last post.

[Tax4fp]

In response to @Xuser , I ran test case using latest version of TT (3/3/22) where the income inputs from column (d) were divided by 4  (the first period scaling factor) and those scaled inputs were entered into 2021 Form 2210AI  column (a) in the appropriate places.  This resulted in the same values in TT Form 2210AI line 13 (a) and (d), and if TT had properly scaled the CG/QD income using a factor of 4, should give the same result in line 14 (a) and 14 (d).  IT DID NOT. For this test case,  TT line 14 (a) came out 10%  (several thousand dollars) higher than line 14 (d).  The Pub 505 calculation(s) for the same data matched 14 (d).  Bottom line is that TT Form 2210 is not calculating 14 (a)-(c) correctly.  

[Tax4fp]

I agree with @kevinandlori  that the problem with line 14 (a)-(c) is related to how TT Form 2210AI scales (QD) and doesn't scale (CG) factors to calculate the impact of CG/QD.  This is wrong and not consistent with IRS Pub 505 which would scale both.  I repeated my test cases with what should be the same scaled income in both columns (a) and (d) putting all of the scaled CG/QD for column (a) in one or the other categories.  If all the CG/QD was entered as CG, 14 (a) was about 20% higher than 14 (d), whereas if all of CG/QD was input as QD, the results for 14 (a) and 14 (d) matched.  Bottom line, TT lack of scaling for CG in calculating 14 (a)-(c) is wrong and not consistent with IRS Form 505, worksheet 2-8 requirements which says both are to be scaled.  Fix your program TT.

[Tax4fp]

@kevinandlori 

I disagree with your statements about line 14 that indicate that TT assuming CG are one time events is  reasonable, much less justified.  Even one time events are to be multiplied by the scaling factor to determine the annualized total income for a given period per IRS rules.  If TT doesn't also scale the CG amount and subtract that from the total income, TT will be calculating the difference at the regular tax rate, rather than at the CG rate.  In my case, the CG for period one was $10,000 (replaces your $1000 in your example).  As a result the 4 x $50,000 =$200,000 in my case includes 4 x $10,000=$40,0000 from this one time event.  When TT only multiplies $10K by 1 rather than by 4 before doing the tax calculation, it means that the calculated tax on the difference ($30K) is calculated based on 24% rate (I'm single) rather than 15% CG rate, resulting in a $2700 higher calculated tax in 14 (a) and a $600 estimated underpayment for that period. Since the issue also exists for the second and third periods, the incorrect calculations in 14 (b) and 14 (c) generate additional incorrect underpayment estimates which resulted in TT saying I owed an underpayment penalty of $132, when a proper calculation using the correct scaling factors showed no underpayment penalty is due.  If I wasn't smart enough to do the calculation separately using the actual IRS rules in Pub 505, I would have ended up paying an incorrect penalty that was 3 x what I paid for TT.  Since TT 100% accuracy guarantee doesn't cover the case where TT calculations result in overpaying the IRS, only in the case where the IRS says I underpaid, I would be screwed out of $132 because TT can't apply the proper scaling factor that IRS Pub 505, Worksheet 2-8 says it should. 

[Xuser]

kevinandlori,

Dividends are recurring. If you receive qualified dividends of $3,000 in January, February and March, then TurboTax assumes you'll also receive dividends in April, May...December for a total of $36,000. If you sell an asset in February and incur a $10,000 long term capital gain, then that's it. You can't sell it again and have another capital gain. You would not "scale" it up.

[Xuser]

kevinandlori

Re: Failure to include above-the-line charitable contributions. As many have pointed out, Schedule AI, line 7 fails to include any amount on Form 1040, line 12(b) (above the line charitable contributions: up to $300 single / $600 MFJ). Taxes calculated on lines 14(a), 14(b), and 14(c) are therefore slightly higher than they should be. (The deduction is properly included in the final tax calculation in 14(d), even though the taxable income shown on line 13(d) is incorrect.)

Schedule 2210AI Line 1(a) includes AGI actually earned in that period. If you made a $300 donation on Christmas, you can't say $75 of it was made 1/1 -3/31. TurboTax could have been programmed to enter amounts for each period, but it was not. You could do a workaround. If you made your $300 donation on Easter (April), then replace your Line 1(b) with an AGI $125 ($300/2.4) less than what you have there now. Note that you would not change Line 1(a). Line 1(c) would be $200 ($300/1.5) less than what you have there now.

[Tax4fp]

@Xuser 

IRS Pub 505, worksheet 2-8, which does the tax calculation for each annualized period when CG and/or QD have been received, specifies that both the CG and QD numbers are to be scaled by the appropriate scaling factor to calculate the annualized tax for each period.  It doesn't matter if CG is a one time event or whether QD or CG is recurring, rather it is done to correctly calculate the annualized tax for that period using the correct tax rates for regular and CG/QD income in that period.  TT is not following the IRS requirements to properly calculate Form 2210 line 14 (a)-(c) when capital gain income is included.

[Xuser]

Tax4fp,

This forum is for seeking help from other users and teasing out potential issues with TurboTax, so please post solutions or questions.

You are not supposed to "scale" QD/CG backwards to previous periods. Line 1 (a) - (d) is for AGI actually earned in each period. Example Line 1(a): $20,000 wages - $1500 pre-tax health insurance premium - $2,000 401(k) contribution + $2,000 QD + $2,000 CG results in $20,500 for Line 1(a). Line 13(a) = $20,500x4 - $12,550 = $69,450. Tax Table lookup: $69,450 - $2,000x4 - $2,000 = $59,450. QD/CG tax = 15% x ($2,000x4 + $2,000).

[Tax4fp]

@Xuser 

My point in scaling the numbers backwards in my earlier test cases was to show that TT was not correctly calculating line 14 in order to rebut your comments that TT was working correctly, because it isn't.   Additional examples have been provided to show the impact of TT errors that don't involve backward scaling to help others understand the impact of TT error, which isn't trivial if significant CG occurs in these earlier periods.

Also, I checked my old tax files for similar line 14 errors to determine if TT was doing things correctly in the past.  I had a similar large LT CG in March 2018 which had been entered as CG in the first period and used 2018 TT to see whether entering my total CG/QD in the QD line and zero in the CG line for the first period changed 14 (a).  It did not, thus showing that TT in the past was correctly scaling both CG and QD in calculating Form 2210AI back then per IRS Pub 505. The incorrect calculation in 2021 TT Form 2210AI appears to be a new issue rather than a long term one.

[Tax4fp]

There is a way to get 2021 TT to correctly calculate line 14 (a)-(c) if you have any long term capital gains in the first three periods.  Simply enter the combined total of cumulative CG/QD into the inputs for QD and enter zeros in the LT CG boxes.  TT will then properly scale the total CG/QD by the respective period factors and produce the correct values in line 14 (a)-(c) that TT uses to determine whether an underpayment has occurred.  The specific breakdown between CG and QD is never shown in either Form 2210 or Form 2210AI that get filed when forms are printed and the IRS accepted a return that was e-filed with this tweak.  Use of this option should be considered if TT calculates that an underpayment is due in order to eliminate or reduce a penalty that TT has over estimated because of their failure to properly implement the IRS requirements in Form2210AI.

[Tax4fp]

Since latest update of TT on 3/11/22 still doesn't fix any of the issues with Forms 2210 and 2210AI, TT may never fix the remaining problems including the issue with line 11 not crediting prior year refund as a tax payment.  In lieu of including 2020 refund as a tax payment credited to 2021 tax return, just include the amount of 2020 refund as a fifth estimated tax payment with the paid date being the date that your 2020 return was filed and/or accepted by IRS.  Looking at the tax payment worksheet in TT, this would result in the same total of estimated tax payments and refund credits for the year and should result in TT increasing line 11 by the amount of the 2020 refund  (via the fifth estimated payment tweak) in the appropriate period when the 2020 return was filed which should eliminate the bogus underpayment penalty due to TT error on this line.

[babyrd55]

You're going to have to remove last year's overpayment application from the tax payments worksheet, otherwise you'll be taking credit for it twice on the 1040 - once as an application from 2020 to 2021 taxes and once as an additional estimated tax payment for this year. I don't know if TurboTax will allow you to efile a return with that field overridden.

[Tax4fp]

Note that in suggesting the possible tweak for problem with line 11 of Form 2210, I said that in lieu of entering the 2020 refund as a credit a person could enter it as a fifth estimated tax payment.  It is easy to verify that only one of these entries is included by selecting the forms view and verifying in the Tax Payments Worksheet that the amount is only listed as a tax estimate (line 5, Federal) and that the block for carried over tax payments (line 6, Federal) is zero.  Only one of these should show the refund credit amount.

In another forum someone commented that they were able to override Form 2210 line 11(a) to include the carried over tax refund credit that TT wasn't carrying forward from the tax payments worksheet.  They didn't indicate if this override cause problems with IRS accepting e-filed return, which other overrides of Form 2210 and Form 2210AI lines have caused, but if the overriding Form 11 (a) to correct TT error is accepted by IRS, then that would be the preferred method in lieu of making the estimated payment tweak.