I have an underpayment for first two quarters of 2021 but Form 2210 shows zero penalty. Is this correct?

Forum|Forum|4 years ago
March 24, 2022
1 reply
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I did a Roth conversion in December 2021, paid the taxes that I calculated that I owed by Jan 15, 2022. As I expected, without filling out Form 2210, Turbotax computed a penalty (of about $100). I then went on to enter data for Schedule AI and Form 2210. My penalty went down to zero. My question though is Form 2210 does show I have an underpayment of about $2,000 for the first two due dates (4/15 and 6/15). Shouldn't Turbotax be calculating a penalty? It seems it should be approximately 60/365 day x .03 x $2000 = $10, or $20 total for both late periods. I did a QuickZoom to see the Underpayment Penalty Worksheet. The underpayments are populated correctly, but the Days Late, Rate Period, Interest Rate and Penalty columns are blank. I'm willing to take the zero penalty 😀, but I am puzzled at how Turbotax arrived at it.

TurboTax Home & Biz Windows

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RaifH

On Form 2210, is line 6 greater than line 9? You may have paid enough taxes to avoid underpayment penalties if you paid 90% of the taxes due this year or 100% of your taxes due in 2020, or 110% of your 2020 taxes if your AGI was greater than $150,000.

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sandy4042Author

Employee

Line 6 (witholding) is less than line 9 (required annual payment). I did not satisfy the safe harbor rule. My income was weighted toward the second half of the year due to income from an inheritance and the December Roth conversion.

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GeorgeM777

Because your income was weighted toward the end of 2021, TurboTax calculated your underpayment penalty using the annualized income installment method. It appears that process resulted in your penalty being reduced to zero. The IRS offers taxpayers the option to use the annualized income installment method to see if that will reduce or eliminate an underpayment penalty.

Schedule AI has four columns, one for each installment period. You must fill out a column at the end of each period, because penalties are due immediately. In each column, you enter your gross income for the period and multiply it by the appropriate annualization factor. For example, the factor for the first installment period is 4.0; if you earned $1,000 in the period, your annualized income for the period is $4,000. You then subtract either itemized deductions for the period or the full standard deduction. After adjusting for the number of exemptions and self-employment tax, you figure your annualized tax based on the data for the period.

You next make a series of entries to calculate the installment due for the period and the penalty you owe for the period. Schedule AI accumulates each previous period’s payments to arrive at your current installment liability. You pay this amount in the current installment. If you underpaid a previous installment, you will still pay a penalty even if you make up the difference in the current period.

@sandy4042

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