Is my 2021 Estimated Tax too low? Is Turbotax incorrectly applying the Max Self-Employment Tax deferral?

Forum|Forum|5 years ago
March 1, 2021
3 replies
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Part 3 of Schedule SE calculates my max deferral of self-employment taxes as $5,130 (line 26).

However, I paid most of this already through 2020 Estimated Payments and only qualify to defer about $800 (not sure if I will or not).

Regardless of whether I take the deferral or not, TurboTax is giving me some pretty low 1040 ES vouchers. Following the data sources, it looks like the Estimated Tax Payment Options Form is ultimately referencing Line 2 on Form 2210. That line is calculated as my Self-Employment tax MINUS my maximum Self-Employment Tax Deferral ($5,130).

Assuming my income is steady next year, wouldn't this ultimately have me underpay my 2021 taxes by the $5,130?

TurboTax Home & Biz Windows

Best answer by DawnC

Thanks for the reply, @suburbanguk ! I'm looking for a more clear answer than "pretty sure" as I'd prefer to avoid any unnecessary penalties come tax time. I'll definitely set aside extra either way, but I'd love for a pro to weigh in more definitively in on this. Have any clarification @DawnC ?

TurboTax defaults to using the method that produces the lowest estimate payment amounts. The option to defer SE taxes will affect those estimate amounts (whether you choose to defer or not) if you use any method based on your 2020 tax bill. Since the option is a one-time only situation, TurboTax did not change the default calculation method.

Excerpt from Breaking down Form 1040-ES: Take the tax you paid in the previous year. Calculate 90 percent of the tax you estimate you will owe in the current year. Compare the two, and take the smaller number. (For example, you paid $500 as tax the previous year. This year you estimate you will pay $1,000, and 90 percent of that is $900. The smaller of the two numbers is $500.) Now compare the total of any withholdings and credits you may have to this number.

The one-time only allowable deferral amount is reducing the tax you paid amount above, even though it should not. Because of this, we recommend taxpayers use the other option - 100% of your 2021 taxes. The way it is being calculated is producing too low of an estimate. The estimated tax should be paid in addition to whatever amounts you deferred (or could have deferred) in 2020, but using the default method - a portion of the allowable deferral amounts is being treated as an estimated tax payment for 2021 - but it is not - those are for tax year 2020.

IRS How To Figure Estimated Tax @LBrand

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npierson777

It is obviously am error with your deferral amount. As for the estimate taxes, please keep in mind they are always approximate amounts, your income can increase or decrease in this year, it is hard to predict. You can use the IRS estimate tax calculator here:

Estimated Taxes

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suburbangukAuthor

Employee

Thanks for the quick response! The problem is I can't find an error with my deferral amount.

I'm not too concerned with my estimated (understand it is an approximation). But this particular calculation is troublesome in that, if somebody didn't know better, they could be caught off guard with a hefty tax bill come 2021 tax season.

I posted hoping to figure our whether this is: 1)something I am misunderstanding, 2)an error in the software, or 3) just a quirk of the tax guidelines that justifies a significant underpayment of estimated taxes.

DawnC

Employee

Have you already entered the amount of estimated taxes you paid in 2020? The deferral amount can't (or it shouldn't be) be more than your tax liability.

The deferred deposits of the employer's share of Social Security tax must be deposited by the following dates (referred to as the "applicable dates") to be treated as timely (and avoid a failure to deposit penalty):

On December 31, 2021, 50 percent of the eligible deferred amount; and
On December 31, 2022, the remaining amount.

How does TurboTax calculate my estimated tax payments? Please see the following Q&A from the IRS......

Q22. Is there a penalty for failure to make estimated tax payments for 50 percent of Social Security tax on net earnings from self-employment for the payroll tax deferral period?

A22. No. For any taxable year that includes any part of the payroll tax deferral period, 50 percent of the Social Security tax imposed on net earnings from self-employment attributable to the payroll tax deferral is not used to calculate the installments of estimated tax due under section 6654 of the Internal Revenue Code. This means that self-employed individuals that defer payment of 50 percent of Social Security tax on their net earnings from self-employment attributable to the period beginning on March 27, 2020, and ending on December 31, 2020, may reduce their estimated tax payments by 50 percent of the Social Security tax due for that period.

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Dwight8

i have a different issue with estimated calculations using tt home and business. each of my 2021 quarterly tax payments were in excess of 110% of both my 2020 total tax and 2021 total tax, but it still says i have a underpayment penalty of $42?

it keeps coming up as a error when i run error check?? is it because the form 2210 is not current?

is there any situation where you still are underpaying even if you exceed 110% of both the 2020 and 2021 total tax bill?? my income was very uneven over the year, but my payments all exceeded 110% of both 2020 and 2021 total tax due so i didn't think my higher income quarters have any impact?

if i just surrender and pay the underpayment penalty so i can get my taxes turned in, is that a red flag when it shows underpayment (even though i've clearly not underpaid)?? the penalty is insignificant, but i'm not sure of the ramifications of throwing in the towel and paying the penalty even though i know i didn't under pay? seriously irritated, any help would be appreciated.

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ThomasM125

The amount of estimated tax you pay will factor into your penalty for late payment of tax, but so will the timing of those payments. You need to pay your tax in evenly for each quarter if you are relying on your tax from the previous year to determine your estimates.

Also, you can work through the underpayment penalties section in TurboTax under Other Tax Situations if you want your penalty to be calculated based on the timing of your income stream and estimated payments during the year. That would be your best option to reduce the penalties you are facing.

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wlush4142

I did not receive state estimated tax vouchers. I did

receive federal tax vouchers. I need 4 state estimated vouchers. How do I print them out. I will be penalized if I don't have them.