1099-r and estimated tax results in penalty

Forum|Forum|2 years ago
April 27, 2024
2 replies
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I took a distribution from my retirement savings, had Schwab withhold an amount equal to my estimated tax, and skipped making the estimate payment for that quarter. This resulted in a penalty for underpayment even though the 1099-r plus estimated payments were sufficient and I had a refund coming. What was the correct way to do this? It seems that I should not have Schwab withhold.

VolvoGirl

Employee

Yes it was good to have Schwab take withholding out. Plus the IRS might recalculate the penalty and send you a refund or bill for more, that's common. The amount Turbo Tax figures is just an estimate. Have you filed yet?

You might be able to eliminate the penalty or at least reduce it. You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you. It's form 2210.

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

fanfare

Employee

Did you file already ?

If you check option D on form 2210 Part II and supply the information you may reduce or eliminate your penalty.

HOWEVER,

When amending, IRS says:

"Subtract any penalty from the amount you owe reported on original 1040.
Don't try to include, but ignore, any new or changed penalty."
IRS will calculate your new penalty on their own taking your revised Form 2210 Line 19 into account and will refund you.

@Wjm2222

dmertz

Employee

By default, tax withholding is treated as paid uniformly throughout the year. If the distribution occurred earlier in the year than Q4, your penalty could be reduced or eliminated by treating the withholding as paid when actually withheld. TurboTax will ask you about doing so when going through the underpayment penalty section.