1. Home
  2. Taxes General Forum
  3. Can someone clarify underpayment penalty for me?

Can someone clarify underpayment penalty for me?

I think I will have an underpayment penalty this year unless I do something, but was wondering if someone can clarify some points for me. Here is my situation:

- Filing married jointly

- My AGI (line 37) last year was less than 150K.

- Our total withheld last year was $18,604, but total tax (line 63) was $22,431 since we also had some self-employed income that I did not pay any tax on durng the year, so owed some tax at the end of the year

- I cashed in a large amount of US savings bonds this year, with about $60,000 in interest paid to me for them

- So, this year my AGI will be over 150K since it includes the 60K of interest, and my tax will be a lot higher than last year since this is an extra 60K that I didnt have last year

- If my wife and I keep withholding as it is now, we will not match last years total tax, probably be a few thousand under, about $20,000

So, from what I understand, since i was under 150K last year, I have to have paid at least my total tax by the end of this year for me to avoid the penalty, but since I will not have witheld 22,431 by the end of the year I will owe some penalty.

- Is this correct? Will I owe a penalty? Did I miss anything? Do you need more info from me?

- How can I avoid this? Do I have to adjust withholding? or can I simply send a check to the IRS to make sure I reach

22,431 by the end of the year?

- If I dont do anything, what would my penalty be? How is it calculated by the IRS? Thanks in advance for all of your help, Art

> > > > > > > > >
Reply to
Art
Loading thread data ...

Thanks guys for your help. So, I seem to be getting conflicting answers as to whether I can send a check to the IRS now or not instead of increasing my withholding. So, can I send a check to the IRS now even if I havent made any payments until now? If so, what form would I use? Also, do states have an underpayment penalty to? specfically NY state? Thanks again Art

Reply to
Art

I suspect that others have pointed out that withholding is treated as if you had paid it evenly thru the year. Estimated tax payments are not; they are treated as paid when you pay them.

I don't know about NY, but I know state penalties can be much worse than federal. The federal "penalties" may be less than what you would pay to borrow from a bank. State penalties may exceed what it would take to borrow from a credit card.

Reply to
DF2

"DF2" wrote: ....

States can also be irritating various ways. Last year I underestimated both NJ and Federal taxes by quite a bit, and sent fairly large checks by Apr 15. A few weeks ago I got a certified letter from NJ, wanting $45 in interest/penalty for underpayment of estimated tax. The "certified" part meant a trip to the post office. The letter also said that the $45 had to be paid by certified or cashier's check. So another trip, this time to the bank. The bank clerk seemed a little fuddled and said "do you want to do this? It will cost $15." I said that that is what the state demands. She talked to her boss and as a special favor, said they wouldn't charge me this time. PITA. If they had just sent a simple notification that I owed $45 I would have saved 2 trips (though lost a story). Dennis

Reply to
Dennis Ritchie

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.