IRS Penalty Box

[ironcorgi]

I have a quick question and I know there are very knowledgeable people here to answer my question.
I wasn't able to update my w4 thanks to the pandemic (our district won't let us email or scan updated W4 forms) so I know I will owe money.
I went to file my taxes like I do every year and this box labeled "IRS penalty box" popped up. Underneath, it says Form 2210: IRS to figure penalty box. You must check this box or wait for an update in early February before you file your return.
So I'm going to get penalized even though I was going to file and pay my taxes today?
I'm very confused by it and tried Googling, but I didn't find any information.

I usually get a refund, but the few times I have owed, I always pay immediately. I have never seen this pop up when filing before, whether I have paid in or gotten money back.

[brux]

There's a penalty if you underpay your taxes throughout the year.

www.fool.com/taxes/2020/02/16/this-simple-tax-move-can-spare-you-penalties.aspx

The Form 2210 isn't done yet for this year, so I don't think you can file yet.

[brux]

From that linked article:

You'll incur an underpayment penalty when you pay less than 90% of your tax liability during the tax year.

The standard penalty is 3.398% of your underpayment, but it gets reduced slightly if you pay up before April 15. So let's say you owe a total of $14,000 in federal income taxes for 2020. If you don't pay at least $12,600 of that during 2020, you'll be assessed the penalty. That's tricky because most of us don't know our total tax bill until we complete our return, which is after the close of the tax year.

[brux]

Here's a link to the draft form 2210, so you can calculate the penalty you owe if you're curious now. This will be in addition to the income taxes you owe.

You can't file yet using this form because it's in draft, but hopefully it won't change much:

Form: www.irs.gov/pub/irs-dft/f2210--dft.pdf

Form instructions: www.irs.gov/pub/irs-dft/i2210--dft.pdf

[ironcorgi]

Jan 21, 2021 14:54:08 GMT -6 brux said:

From that linked article:

You'll incur an underpayment penalty when you pay less than 90% of your tax liability during the tax year.

The standard penalty is 3.398% of your underpayment, but it gets reduced slightly if you pay up before April 15. So let's say you owe a total of $14,000 in federal income taxes for 2020. If you don't pay at least $12,600 of that during 2020, you'll be assessed the penalty. That's tricky because most of us don't know our total tax bill until we complete our return, which is after the close of the tax year.

I owed last year also (which is why I tried to change my w4 this year), and never got penalized. My w4, filing status, and my income haven't changed at all in the last two years (yay for not getting a raise).
I wonder why it's popping up this year but not last year?
I owe 2655 and was supposed to pay in 3615, so I guess I will be penalized $90ish

Thanks for the info! At least I have a number to estimate my penalty now 🙂

[brux]

Jan 21, 2021 15:04:43 GMT -6 ironcorgi said:

Jan 21, 2021 14:54:08 GMT -6 brux said:

From that linked article:

You'll incur an underpayment penalty when you pay less than 90% of your tax liability during the tax year.

The standard penalty is 3.398% of your underpayment, but it gets reduced slightly if you pay up before April 15. So let's say you owe a total of $14,000 in federal income taxes for 2020. If you don't pay at least $12,600 of that during 2020, you'll be assessed the penalty. That's tricky because most of us don't know our total tax bill until we complete our return, which is after the close of the tax year.

I owed last year also (which is why I tried to change my w4 this year), and never got penalized. My w4, filing status, and my income haven't changed at all in the last two years (yay for not getting a raise).
I wonder why it's popping up this year but not last year?
I owe 2655 and was supposed to pay in 3615, so I guess I will be penalized $90ish

Thanks for the info! At least I have a number to estimate my penalty now 🙂

Without a line by line comparison of your two W-2s and your two tax returns, I can't even begin to guess why you didn't have enough withheld this year. 

I think there was some funkiness with what employers could do with employees' withholdings this year as a way to give Covid relief, but in a fucked up way that just pushed the tax obligation out to now after giving you a bit more take home throughout 2020.

[ironcorgi]

Jan 21, 2021 15:13:13 GMT -6 brux said:

Jan 21, 2021 15:04:43 GMT -6 ironcorgi said:

I owed last year also (which is why I tried to change my w4 this year), and never got penalized. My w4, filing status, and my income haven't changed at all in the last two years (yay for not getting a raise).
I wonder why it's popping up this year but not last year?
I owe 2655 and was supposed to pay in 3615, so I guess I will be penalized $90ish

Thanks for the info! At least I have a number to estimate my penalty now 🙂

Without a line by line comparison of your two W-2s and your two tax returns, I can't even begin to guess why you didn't have enough withheld this year. 

I think there was some funkiness with what employers could do with employees' withholdings this year as a way to give Covid relief, but in a fucked up way that just pushed the tax obligation out to now after giving you a bit more take home throughout 2020.

I read about them having the ability to do that, so I guess I should have expected this. I'm just thankful we have the money to pay it.
It's going to be awful for those that don't have the money and aren't expecting to owe. 😔

[lunarscallion]

When I worked there (long ago) we allowed for a one-time courtesy penalty abatement in many cases but I was working collections cases so I’m not sure how/if that works when you don’t currently owe. Not to mention, I’m not sure the 1040 line is even open right now with Covid. brux may be able to speak to this better than me but wanted to bring that up in case penalty abatements are still the norm.

[cmb]

Jan 21, 2021 15:04:43 GMT -6 ironcorgi said:

Jan 21, 2021 14:54:08 GMT -6 brux said:

From that linked article:

You'll incur an underpayment penalty when you pay less than 90% of your tax liability during the tax year.

The standard penalty is 3.398% of your underpayment, but it gets reduced slightly if you pay up before April 15. So let's say you owe a total of $14,000 in federal income taxes for 2020. If you don't pay at least $12,600 of that during 2020, you'll be assessed the penalty. That's tricky because most of us don't know our total tax bill until we complete our return, which is after the close of the tax year.

I owed last year also (which is why I tried to change my w4 this year), and never got penalized. My w4, filing status, and my income haven't changed at all in the last two years (yay for not getting a raise).
I wonder why it's popping up this year but not last year?
I owe 2655 and was supposed to pay in 3615, so I guess I will be penalized $90ish

Thanks for the info! At least I have a number to estimate my penalty now 🙂

There *used* be a loophole where if you didn’t pay the 90% of estimated taxes, but paid at least the total amount of taxes due the year prior, the penalty fee would be waived. I don’t know if that still exists, but we utilized it in 2016 when we got screwed with tax withholdings

Throwing that out there as an option as to why you didn’t have a penalty last year but do this year (if you did pay enough in withholdings last year to equal what you owed in 2018)

[zoeylucy]

I’m going to owe this year for the first time ever. It sucks, but at least I can pay it.