Question

IRS Rules for Tax Underpayment Penalty

Forum|Forum|4 years ago
April 1, 2022
1 reply
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I need a clarification of the IRS rules for tax underpayment penalty. If he is getting a refund on his 2021 return, (having paid estimated taxes last year), TurboTax indicates that he doesn't technically need to pay estimated taxes for tax year 2022. However, he is expecting a 15% increase in taxable income in 2022, and without paying estimated taxes, he is not likely to have paid least 90% of the tax that will be due on the 2022 return.

According to IRS rules, can we be confident that he will not be penalized if he does not pay estimated taxes?

D

DavidD66

If you pay at least 100% of the amount of tax you owed in the previous year you won't owe an underpayment penalty. The safe harbor amount for high income taxpayers is paying in 110% of the previous year's tax. A high income taxpayer is one whose previous year's adjusted gross income was $150,000 or more ($75,000 or more if you were married and filing a separate return).

If "he" satisfies the safe harbor he will not be penalized if he doesn't pay estimated taxes.

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K

K20212

I have paid 110% of my 2021 tax in 2022, but Turbotax is still saying i have a tax penalty. When prompted to fill out Form 2210, it inaccurately forces matching a tax sum that i don't recognize (its not the federal tax withheld number in my 2022 W-2, nor is it the number that includes how much i prepaid in Federal taxes in 2022). Can i get more details on how this tax penalty is being calculated so i understand what its root cause is?

B

BrittanyS

The underpayment penalty is calculated by your adjusted gross income (AGI) for the previous year. If your AGI for last year exceeded $150,000, you must pay the lesser of 110% of the previous year's tax or 90% of this year's tax. If you do not exceed $150,000, you must pay the lesser of 100% of last year's tax or 90% of this year's tax.

The penalty is calculated based on what should have been paid each quarter. The 2022 rates are as follows: