MD is charging me $35 for underpayment interest. But I paid my taxes in full and there should me no underpayment interest. How do I take care of this?

[BillM223]

The General Instructions for Maryland form 502UP state:

"Section 10-815 of the Tax-General Article of the Annotated Code of Maryland requires every individual, or individuals filing jointly, who receives taxable income which is not subject to Maryland withholding, or from which not enough Maryland tax is withheld to file a Declaration of Estimated Tax, if the income can be expected to develop a tax of more than $500 in excess of the Maryland withholding. Furthermore, Sections 13-602 and 13-702 stipulate that any individual so required to file, who either (1) fails to file on the date or dates prescribed; (2) fails to pay the installment or installments when due or (3) estimates a tax less than ninety (90) percent of the developed tax shown on the return for the current tax year and less than 110% of the tax that was developed for the prior year, shall be subject to penalty and interest."

Did you pay at least within $500 of the eventual tax due? Did you pay these taxes quarterly? The IRS and the states run a pay-as-you-go system - you have to pay through the year, not just at the end.

Were your doing withholding on a W-2? or paying estimate taxes?

Does anything in the paragraph from the state give you pause?

[nh1rb2bp-]

This mumbo jumbo does not answer my question at all.

I paid my MD taxes in full last year on 3/8/19 and am now being charged a$35 fee out

of the blue.

M.Stearns

[DavidS127]

It is very important to answer all the questions in the underpayment penalty sections of TurboTax--both federal and state--to make sure you don't qualify for an exception to the underpayment penalty.  

The basic rule, whether federal or state, is that tax should be paid as the income is earned.  So, if you made money in the first part of 2019, but didn't pay any taxes (withholding or estimates) until the last part of 2019, you can owe an underpayment penalty even if you pay your taxes in full by the due date for the return.  In fact, you can have an underpayment penalty even if you are getting a refund.

That being said, the taxing authority will typically apply several "tests" that can help avoid an underpayment penalty, based on what you paid for 2018 taxes, and what and when you paid for 2019 taxes.  For example, if most of your income was in the last part of 2019, you may be able to calculate your penalty using the "annualized" method and avoid or reduce the penalty.  

So, one thing to do is navigate to the underpayment penalty section of TurboTax and make sure you entered your prior year tax and income where requested.  Click on the Search icon on the top left, enter "underpayment penalty" in the search window, and then click on "Jump to underpayment penalties".  There should also be a section for this in your Maryland state tax return questions.

[ols]

I think I am in the same boat and I need help. I reside in MD all year and work in DC. But my employer somehow withheld DC taxes for more than half of 2019 before correcting it. Now MD want to charge me and also asking me to complete the PV form in turbo tax. How do I go about this? I didn't initiate any of this changes. Please help.

[beyondthebox]

Late but...

What I have noticed in looking at the 502UP prepared by TurboTax is that the expectation is that 25% of your total tax due for the year must be paid with each estimated payment period. In reality, this does not seem to match the IRS income periods of 3 for 4/15, 2 for 6/15, 3 for 9/15 and 4 for 12/15. Which does not represent an even distribution yet MD wants to use one.

It looks like there is an option to record actual income for each period on the 502UP but that does not seem to be the Turbo Tax approach which would then require you to manually update the 502UP. Best thing to do is follow the guidelines for 110% of the previous year or 90 % of the current year (which ever is lower) and then may EQUAL payments over the year (divide the MD tax due by 4).

[ron6612]

Maryland extended 4/15 and 6/15 estimated filing dates to 7/15. If you enter your filing dates as 7/15 in TurboTax Maryland deluxe software, the software will access penalty and interest on both payments. I’ve called TurboTax customer service multiple times, received cases but there is absolutely no follow up as to this software glitch!  Wasted time over the phone and nothing resolved!

[jeff7]

I have the same issue and have been waiting for TT to fix this issue.

While you can manually correct this by inserting the first and second period estimated amounts paid on line 14 of Form 502UP, it would be nice if the software did this for us.  

[ron6612]

I called supply and they said would not fix software for tax law change so you need to change the payment dates as noted. Not a professional fix to this having to wrongly enter the date paid. 

[joegeodesist]

[updated to clarify] Edit line 14 is awkward in my '23 TurboTax Deluxe Mac version, it appears uneditable, but the same values appear farther up the worksheet, and can be edited there.