Estimated Tax Penalty

[lindenbh]

I made a first-quarter estimated tax payment in April 2022 on time (the amount was based on the amount TurboTax gave me from my 2021 returns).  Then, I made a Roth Conversion later in April and December.  The three subsequent estimated tax payments (all made on time) were higher to account for the conversions.  I am receiving a federal tax refund for 2022.  Why do I owe a $10 estimated tax penalty?  Is it because the 1st quarter payment was so low (even though at the time of the 1st quarter payment I had not yet completed the conversion?)  I am probably not going to quibble with a $10 penalty but I want to understand this better.  (And if it matters, I made payments of more than 110% of the 2021 tax liability.) Thanks.

[Opus 17]

If the program allows you to decline the penalty, I would do that, and wait and see if the IRS bills you.

The tax system is supposed to be pay-as-you-go, and if your payments don't keep up with your income, you can be assessed a penalty, even if you pay in full in time.  My guess is the late conversion is being annualized, with the result that the April payment appears too low.  But you would need to look at the actual form to see how the calculation is being made.  Rather than fuss with it, I would decline the penalty and wait and see if the IRS bills you.  You can then request a waiver for cause, or if this is the first time you have been assessed a penalty. 

[Mike9241 · Accepted solution]

under the default method, 1/4 of your annual taxes are due each quarter regardless of when the income is earned. so if you earned everything on 12/31/22 and paid the taxes by 1/15/2023 you would be subject to penalties for the first three quarters.  there is also the annualized income installment method that allows you to compute quarterly taxes based on your actual income, deductions, other taxes, tax credits for each quarter.  It's on page 3 of the 2210. In your situation, I would not recommend using it considering the penalty is only $10 and you might never be billed.   if the IRS does bill you you can go back and use this method but it doesn't only reduce the penalties.

[Jterra]

 I have a similar situation.  But, I made the decision to make the Roth Conversion in December.  I immediately made a "special" estimated tax payment since that was when I had realized the income.  I also made a "reduced" estimated 4th quarter payment in July once I received my Capital Gains forms for the year (they were substantially less than in 2021, the values used to compute the 4 quarterly payments).  My penalty this year is greater than the $10 in the original post.  Was I penalized by not being prescient about decisions I would make in December wrt Roth Conversions, or the Capital Gains realized by the money market manager's actions?  Did I really do something wrong?  It's especially galling given that we are getting a large return from the IRS mainly because of the reduced income from the aforementioned Capital Gains. 

Frustrating that Turbo Tax only provides the penalty but now how it's computed.  There is no Form 2201 included.  Nor can I find a way to "decline to pay the penalty".

[VolvoGirl]

You might be able to eliminate it or at least reduce it. You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you. It's form 2210.

How to add form 2210 for Underpayment Penalty
https://ttlc.intuit.com/community/tax-payments/help/how-do-i-add-form-2210/00/25703

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

If you have the desktop program you can switch to Forms Mode (click forms in the upper right (left for Mac)) and open the 2210 form. If the 2210 doesn't show up in the left column, click on Open Forms at the top of the left column. Type 2210 in the search box and open the 2210 form. Check box C to let the IRS calculate it.