Turbo Tax 2020 not adding Form 2210 for underpayment penalty

[kevinandlori]

There are several problems with Form 2210 that remain as of March 5:

1. Failure to include 2020 refunds applied to 2021 taxes. 2020 refunds applied to 2021 taxes are not credited as tax payments in any column of Form 2210, Part III Line 11. (Part 2 Box C is checked, Box D is not). Instructions for Line 11 state they should be included: "Include the following payments: Any overpayment from your 2020 return applied to your 2021 estimated tax payments." For those that filed by April 15, the credit should be included in the first quarter for Line 11, but TT fails to include it in any quarter.

2. Failure to include above-the-line charitable contributions. As many have pointed out, Schedule AI, line 7 fails to include any amount on Form 1040, line 12(b) (above the line charitable contributions: up to $300 single / $600 MFJ). Taxes calculated on lines 14(a), 14(b), and 14(c) are therefore slightly higher than they should be. (The deduction is properly included in the final tax calculation in 14(d), even though the taxable income shown on line 13(d) is incorrect.)

Finally, it is not explicitly stated, but TT assumes that capital gains are one-time events for each quarter, while qualified dividends will continue throughout the year. Consequently, qualified dividends are annualized by multiplying by 4, 2.4, and 1.5 for the first through third quarters in the tax calculation, but capital gains are not multiplied by any factor. For example, if you are married filing joint and have $50,000 in income that includes $1000 in capital gain in the first quarter, TT calculates the taxes on (4*$50,000)-$1000 = $199,000 at regular tax rates and $1000 at 15% tax rates. However, if you have $50,000 in income that includes $1000 in qualified dividends it calculates the taxes on (4*50,000)-4*$1000 = $196,000 at regular tax rates and 4*$1000 = $4000 at 15% tax rates. The underlying assumptions that qualified dividends are recurring (and hence should be annualized) but capital gains are one-time-events (and hence should not be annualized) are reasonable for many, but not all.

[Tax4fp]

@kevinandlori 

I disagree with your statements about line 14 that indicate that TT assuming CG are one time events and not scaling them for that period is even reasonable.  Even one time events are multiplied by the scaling factor to determine the annualized total income for a given period per IRS rules.  If TT doesn't also scale the CG amount and subtract that from the total income, TT will be calculating the difference at the regular tax rate, rather than at the CG rate.  In my case, the CG for period one was $10,000 (replaces your $1000 in your example).  As a result the 4 x $50,000 =$200,000 in my case includes 4 x $10,000=$40,0000 from this one time event.  When TT only multiplies $10K by 1 rather than by 4 before doing the tax calculation, it means that the calculated tax on the difference ($30K) is calculated based on 24% rate (I'm single) rather than 15% CG rate, resulting in a $2700 higher calculated tax in 14 (a) and a $600 estimated underpayment for that period. Since the issue also exists for the second and third periods, the incorrect calculations in 14 (b) and 14 (c) generate additional incorrect underpayment estimates which resulted in TT saying I owed an underpayment penalty of $132, when a proper calculation using the correct scaling factors showed no underpayment penalty is due.  If I wasn't smart enough to do the calculation separately using the actual IRS rules in Pub 505, I would have ended up paying an incorrect penalty that was 3 x what I paid for TT.  Since TT 100% accuracy guarantee doesn't cover the case where TT calculations result in overpaying the IRS, only in the case where the IRS says I underpaid, I would be screwed out of $132 because TT can't apply the proper scaling factor that IRS Pub 505, Worksheet 2-8 says it should. 

[Tax4fp]

There is a way to get 2021 TT to correctly calculate line 14 (a)-(c) if you have any long term capital gains in the first three periods. Simply enter the combined total of cumulative CG/QD into the inputs for QD and enter zeros in the LT CG boxes. TT will then properly scale the total CG/QD by the respective period factors and produce the correct values in line 14 (a)-(c) that TT uses to determine whether an underpayment has occurred. The specific breakdown between CG and QD is never shown in either Form 2210 or Form 2210AI that get filed when forms are printed and the IRS accepted a return that was e-filed with this tweak. Use of this option should be considered if TT calculates that an underpayment is due in order to eliminate or reduce a penalty that TT has over estimated because of their failure to properly implement the IRS requirements in Form2210AI.

[Spino]

excellent workaround, thanks for pointing it out.

[Rickp973]

Even for those of us who are tax geeks (some of us seem to be!), this is a very frustrating issue with TT.

TT does not annualize cap gains and assumes charitable deductions all occur one time at the end of the tax year (maybe because I lumped all charitable deductions into one entry, who knows).

Perhaps these are just simplifying assumptions TT made but they are certainly causing significant issues for users of the software. These nuanced errors, along with the other obvious errors, are not consistent with a reliable product from Intuit. Shame on Intuit for putting a product out that is unverified, inadequate, and incorrect, and has to be quality inspected and resolved by the users.

Of course, Block doesn't even include this form in their software, which is what drove me to TT in the first place. But I wonder if I'm better off with no form at all, or one that is loaded with errors.

Hopefully, I don't need this form next year and I can go back to Block, or someone else where I can pay my fee and get something that works so I don't have to go through this again.

[Tax4fp]

Since latest update of TT on 3/11/22 still doesn't fix any of the issues with Forms 2210 and 2210AI, TT may never fix the remaining problems including the issue with line 11 not crediting prior year refund as a tax payment.  In lieu of including 2020 refund as a tax payment credited to 2021 tax return, just include the amount of 2020 refund as a fifth estimated tax payment with the paid date being the date that your 2020 return was filed and/or accepted by IRS.  Looking at the tax payment worksheet in TT, this would result in the same total of estimated tax payments and refund credits for the year and should result in TT increasing line 11 by the amount of the 2020 refund  (via the fifth estimated payment tweak) in the appropriate period when the 2020 return was filed which should eliminate the bogus underpayment penalty due to TT error on this line.

[Spino]

I have not verified this issue, but this is a great workaround if TT correctly calculates estimated payments, but not the application of refunds.

One thing to note is that the IRS does not generally care about the specific date, everything is broken up according to those dates in the columns. So assuming you filed last years return on time, your applied payment simply needs to be listed in the first reporting period of 2021.

With changes like this, of course, we have to watch out for unintended impacts. As stated, this fix does not include backing out the applied refund somewhere else. As a result, if there is some other form that includes it, there might be an error there. An example might be the calculation of how much you paid in total taxes as a credit on a state form. Again, I have not verified this, just discussing possibilities to watch out for.

[Tax4fp]

Note that in suggesting a possible tweak for problem with line 11 of Form 2210, I said that in lieu of entering the 2020 refund as a credit a person could enter it as a fifth estimated tax payment.  It is easy to verify that only one of these entries is included by selecting the forms view and verifying in the Tax Payments Worksheet that the amount is only listed as a tax estimate (line 5, Federal) and that the block for carried over tax payments (line 6, Federal) is zero.  Only one of these should show the refund credit amount.

In another forum someone commented that they were able to override Form 2210 line 11(a) to include the carried over tax refund credit that TT wasn't carrying forward from the tax payments worksheet.  They didn't indicate if this override cause problems with IRS accepting e-filed return, which other overrides of Form 2210 and Form 2210AI lines have caused, but if the overriding Form 11 (a) to correct TT error is accepted by IRS, then that would be the preferred method in lieu of making the estimated payment tweak.

[Spino]

I believe TT refuses to submit any return to the IRS with an override in it, so workarounds that are to be submitted electronically via TT must have no overrides.

[abcxyz20]

How do you request a waiver? Thanks

[Spino]

You can ask for a waiver of penalties, but not principal and interest, with a letter that explains why this is the first and only time this will happen and how you were not intentionally breaking the tax code. Sometimes this works :-), although of course the IRS doesn't need to accept your reasoning or show you grace.
Of course it helps in these situations if you have already paid everything you owe, you don't have other problems, and you are a poor, humble soul just trying to be a good citizen 🙂 (and you can write a clear, but not lengthy, letter explaining your unusual situation.

[TxUser2014b]

@Tax4fp 

Tax4fp: I incorrectly read your post so the first portion of this reply was incorrect .  I am deleting that part.

I modeled 5 versions of this problem and was only able to get the correct tax on line 14 by combining LTCG & QDI, annualizing it, and entering it on the LTCG row.  REGARDLESS, this is a serious error on the part of TTax and there are potentially thousands of users that are having an erroneous penalty calculated and have not even noticed the problem.  This is especially true since TTax does not create and store the worksheets for the quarterly calculations.  I intend to file a complaint with FTC.GOV (use fraud complaint) today and I recommend that everyone that is getting no response from TTax support to do the same.  Hopefully a few hundred complaints with a federal agency will wake TTax.

[Tax4fp]

Update on 4/20/2022 finally fixed the tax calculation error in Form 2210AI line 14 (a)-(c) where LTCG was not being scaled each period as IRS required for these calculations.  Too late to help anyone who filed on or before due date for 2021 federal taxes.

[Bikers]

I received a letter from the IRS stating that I had a $135 penalty because I did not calculate estimated taxes correctly.  Turbo Tax did not alert me that this was a potential problem during my preparation.  How do I avoid this in the future?

I did pay the penalty.  I did not think I would have any success trying to get relief either from the IRS or Turbo Tax.

[Spino]

Hello, Bikers,

It is possible to get the penalty waived in some situations. However, I agree with you. For $135 I would and I have just paid the penalty, even when I shouldn't have been charged (in my case, the state did not take into account my uneven income through the year, but like you say...I would have spent the money explaining to them why I shouldn't have to spend the money. Consider it my contribution to my wonderful state of residence ;-).

There is usually an easy way to avoid the penalty--pay in more for the next year than you owed in total the last year. This is not the amount due on your 1040, but the total tax. Let's say my total tax in 2021 was 10,000. If I send in $10,100 by April 15, 2022, I will be exempt from the (US federal) penalty in 2022. At an interest rate of 0.1% that is a loss of interest of $10 for the year, some or all of which I would have had to pay along the way anyway.

If your state also collects income tax, usually something similar will work, but I haven't checked every state to verify this.

AND it's also good practice to monitor your income and pay in extra any quarter that you have extra income, so you're also caught up as you go along, since estimated taxes are due through the year as you earn income.