MI Tax Underpayment Situation - Penalty?

Forum|Forum|2 years ago
February 11, 2024
1 reply
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2023 Michigan Desktop Premier version is telling me I may owe an underpayment penalty for 2022. I saw another reply indicating that this was specific to non-resident filers and social security calculations. I am a MI resident, so that is not the cause for me. Why is it trying to get me to calculate an underpayment penalty?

DawnC

Employee

Have you entered all of your income, withholdings, and estimated tax payments? Michigan: Penalty and interest is charged for the following reasons:

Estimated payments were underpaid in one or more quarters
Estimated payments were received late
Note: Payments that are not received by the due date will be applied to the following estimated tax quarter
No estimated payments were received
You received income unevenly during the year and did not annualize your income

The Michigan Department of Treasury follows the Internal Revenue Service (IRS) guidelines for estimated tax requirements. Based on the IRS estimated income tax requirements, to avoid penalty and interest for underpaid estimates, your total tax paid through credits and withholding must be:

90% of your current year's tax liability or
100% of the previous year's tax liability or
110% of your previous year's tax liability if your previous year's adjusted gross income is more than $150,000 ($75,000 for married filing separately)

Penalty is 25% for failing to file estimated payments or 10% of underpaid tax per quarter. Interest is 1% above the prime rate.

To possibly reduce or eliminate your underpayment penalty, open your return in TurboTax and search for annualizing your tax (use this exact phrase). This will take you to the underpayment penalty section, and we'll take you through the steps to possibly reduce what you owe.

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barussel22Author

Yes, I have made all my entries in Federal and was working through all the entries for State using the guide me approach. I did a pre-tax 401k conversion to post tax 401k Roth during December 2023. I made estimated tax payments to Federal and MI State in December 2023. I do not make estimated tax payments typically, i did in this case as most things i read indicated you could get a penalty if you did not make estimated tax payments.

Also, it is saying i owe for underpaying in 2022, it is not saying i owe as part my 2023 taxes.