How to waive an underpayment penalty for 2020?

[yatoshura]

My total federal tax withholding from my employer last year (2019) was about 35K. I sold some long term RSU last year in May and it seems to have incurred over 30K of additional withholding from long term gain. The RSUs that I sold were vested over 4 years before and each time on vesting date, some shares were automatically sold to cover taxes. However, this year I owe a $450 underpayment penalty.

I paid a $80 underpayment penalty for 2019 because my federal tax withholding was insufficient. That was my very first underpayment penalty.

-Is this $450 penalty expected for my 2020 scenario? 

-Is there any possibility of reducing or waiving the penalty?

Appreciate any help. Thanks.

[LenaH]

It depends. Per the IRS, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or if they paid 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.

If you have an underpayment, all or part of the penalty for that underpayment will be waived if the IRS determines that:

• In 2019 or 2020, you retired after reaching age 62 or became disabled, and your underpayment was due to reasonable cause (and not willful neglect); or

• The underpayment was due to a casualty, disaster, or other unusual circumstance, and it would be inequitable to impose the penalty.

Please see Instructions for 2210  for more information if one of those exceptions may apply to your situation. 

[yatoshura]

It seems like I owe about 30K in taxes for 2020 due to the long term RSU gains when I sold the shares in May 2020. From TurboTax, my total withholding should be 60K in 2020, but my employer only withheld 30K so the RSU sell incurred additional tax liability that was not accounted for which caused such high underpayment penalty. 

Am I eligible for the first time underpayment abatement to waive the $450 penalty fee?

[LenaH]

No, you are not eligible for the penalty abatement because you owned a $80 underpayment penalty in 2019. 

The IRS may provide administrative relief from a penalty that would otherwise be applicable under its First Time Penalty Abatement policy.

You may qualify for administrative relief from penalties for failing to file a tax return, pay on time, and/or to deposit taxes when due under the Service's First Time Penalty Abatement policy if the following are true:

• You didn’t previously have to file a return or you have no penalties for the 3 tax years prior to the tax year in which you received a penalty.
• You filed all currently required returns or filed an extension of time to file.
• You have paid, or arranged to pay, any tax due.

Penalty Relief Due to First Time Penalty Abatement or Other Administrative Waiver

@GayleS03

[Mike9241]

to request waiver box A or B on the 2210 must be checked.

this is what the IRS says

Waiver of Penalty
If you have an underpayment, all or part of the penalty for that
underpayment will be waived if the IRS determines that:
• In 2019 or 2020, you retired after reaching age 62 or became
disabled, and your underpayment was due to reasonable cause
(and not willful neglect); or
• The underpayment was due to a casualty, disaster, or other unusual
circumstance, and it would be inequitable to impose the penalty.

don't think you'll qualify because you could have had your withholding adjusted so it was either 100% of 2019 tax or 110% if you AGI was over $150,000K  but nothing ventured nothing gained.  

[yatoshura]

Thanks for the reply.

-Is it worth sending in a statement explaining my scenario to the IRS regarding the underpayment and see if I can claim a waiver?

-Is it better to pay the estimated underpayment penalty when I file my tax returns? Or wait until the IRS send me the bill with the actual penalty amount? 

-If the estimated penalty that I end up paying upfront is less than the actual penalty that I owe, will this incur any late fee or even more penalty?

Thanks again.