safeharbor

[djb20814MD]

Hello. Last year we filed using a far inferior software program (hint, it starts with HR and ends with Block), and checked the box for safe harbor estimated taxes. We paid 110% of our 2020 income in estimateds on time for all four 2021 quarterly periods. When later in 2021 that it became apparent  that our income was going up by more than 110%, we paid extra in Q4. The extra amount didn't get us all the way caught up, and TurboTax is now saying I owe more than $500 in underpayment penalties. I thought that by electing safe harbor we were shielded from penalties in the event of an underpayment. Is there anything we can do? Please let me know. Thank you!

[JamesG1]

Use IRS Form 2210 to see if you owe a penalty for underpaying your estimated tax.  In TurboTax Online, access the form at Federal / Other Tax Situations / Your uncommon tax situations / Additional Tax Payments / Underpayment Penalties.

Form 2210 Instructions state:

Who Must Pay the Underpayment Penalty

In general, you may owe the penalty for 2021 if the total of your withholding and timely estimated tax payments did not equal at least the smaller of:

1. 90% of your 2021 tax, or

2. 100% of your 2020 tax. Your 2020 tax return must cover a 12-month period.

This test is made in Part I of IRS Form 2210 which can be viewed at Tax Tools / Print Center / Print, save or preview this year's return.

The IRS will generally figure your penalty for you and you should not file Form 2210. You can, however, use Form 2210 to figure your penalty if you wish and include the penalty on your return.

There are some situations in which you must file Form 2210, such as to request a waiver.

[djb20814MD]

Thanks James. The page on TurboTax says I need to reply yes to all three circumstances below which is different than what you were saying, I think. We do meet the second criteria you listed, "2. 100% of your 2020 tax. Your 2020 tax return must cover a 12-month period."  Am I misunderstanding something here? 

[DMarkM1]

You answer "No" here and "Continue" to get to the questions asking about your 2020 tax and adjusted gross income.  If the numbers you enter meet the 100% or (110% for higher AGI) the penalty will be removed from your return.