State Tax Underpayment Penalty due to Remote Working

[getthereslowly]

Hello there,

I work remotely for a CA company from MI. My company withheld CA state tax but not MI state tax.
When I worked through my tax for 2021, I realized that I can get a refund for the tax withheld by CA. However, when I tried to pay the MI tax I owe, I noticed that there is a huge penalty I have to pay due to underpayment.

I am asking if there is a way to waive or reduce that penalty? Because I was actually withheld way more tax by CA and my company was just not able to withhold MI state tax for me.

Thanks a lot!

[MaryK4]

Unfortunately, Michigan has one of the highest penalties for underpayment of estimated tax. If you do not meet the exceptions, they will send you a bill for the penalty.

Taxpayers who failed to make required estimated payments, paid late, or underpaid in any quarter, may be charged penalty and interest. Penalty is 25 percent of the tax due (with a minimum of $25 per quarter) for failing to make estimated payments or 10 percent (with a minimum of $10 per quarter) for failing to make sufficient estimated payments or making estimated payments late. 

The Michigan Department of Treasury follows the Internal Revenue Service (IRS) guidelines for estimated tax requirements. Based on the IRS estimated income tax requirements your total tax paid through credits and withholding must be:

• 90% of your current year's tax liability or
• 100% of your previous year's liability
• 110% of your previous year’s liability if your previous year’s adjusted gross income is more than $150,000 ($75,000 for married filing separate).

[getthereslowly]

Thank you so much, would you be able to list what are those exceptions?

[HelenC12]

Per  MI Department of Treasury: Scroll down to Penalties.

• No penalty is imposed on a taxpayer who fails to make an estimated payment if the taxpayer was not required to make estimated payments in the immediately preceding tax year. 
• Also, no penalty is imposed for any underpayment of a Q4 estimated payment if the taxpayer files a return for the taxable year on or before January 31 of the following taxable year and pays in full the amount computed on the return.