Form 2210 Schedule AI Applicable Percentage

Forum|Forum|4 years ago
February 26, 2022
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Can someone explain where the pre-filled applicable percentage on line 10 of form 2210 Schedule AI comes from? See snippets below. I think the IRS takes 90% of the period and puts the % there. For example, column (a) is 3 months. That is 25% of a year. Take 90% of that, and you get 22.5%. That checks. It also works for column (d). However, column (b) doesn't work. (b) is 5 months. That is 42% of a year. 90% of that is 38%, but the IRS pre-fills in 45%. Same issue in column (c). The result is columns (b) and (c) will artificially tell you to pay more than you really are supposed to. Someone tell me if I have this wrong. Thanks for the help.

Best answer by NCPERSON1

Yes, the headings say 5 months for 2nd quarter and 8 months for 3rd quarter, so the pre-filled percentages for the 2nd quarter numbers should be based on 5 months and the 3rd quarter numbers on 8 months.

But the pre-filled percentage calculation on line 20 is therefore wrong. 5 out of 12 months (for Quarter 2) is 41.7%; when you take 90% of that, you get 37.5%. That's what the pre-filled number on line 20 for quarter 2 should be. But they filled in 45% instead, which makes the amount of estimated tax for the 2nd quarter too high. Same issue for quarter 3. Quarters 1 and 4 are correct.

I think you are misunderstanding the form's approach: the form is correct.

You are required to pay 90% of your tax liability in EVEN quarterly installments, hence the 22.5%, 45%, etc. That is the law, even though the 2nd payment is due in June (and not July) and the 3rd payment is due is Sept (and not Oct). Do not confuse logic with the law! Law trumps logic!

However, the data used to determine the annualized income is predicated on 3 months year to date, 5 months year to date, 8 months year to date, etc.

For the 2nd quarterly payment, five months of income is ANNUALIZED to determine the ANNUALIZED tax liability and since half of 90% of due under law, then 45% is the appropriate factor.

Make sense? (and if not, contact your Congressman - they passed this law!)

@Lanikai200

Lanikai200Author

This might help illustrate my logic a little better.

fanfare

Employee

@Lanikai200

Why are you worried about this?

Why are you trying to impose some complicated rule on top of IRS's simple rule?

The amount is 22.5% x N where N is the column number.

I believe that is called evenly divided into four ES payments.

Lanikai200Author

Yes, it's simple to multiply the numbers. The issue is that the pre-filled 45% in colume (b) and 67.5% in column (c) are too high unless I am missing where those numbers came from. Since they are too high, the schedule calculates quarterly payments for quarters 2 and 3 (columns (b) and (c)) that are too high. So you owe a penalty that you shouldn't actually owe. I don't like to pay penalties, especially ones I shouldn't actually owe.