If I understand correcectly, one owes a penalty if one has less than
90% of your last year's tax withheld. In my situation, I had 89.95 % of my 2006 tax withheld this year. I was just short $20 . Will the IRS computers still send me a letter in a few months asking for the < $1 penalty ?
Maybe but probably not.
Sorry, you do not understand it correctly. To not have a penalty for underpaying THIS YEAR'S tax (2007) you mjust withhold at least 90% of THIS YEAR'S tax (2007), or 100% of last year's tax (2006) (unless your AGI last year was over $150K). So you missed it by 10.05% , not .
05%.. If ..05% = $20, then 10.05% = $4,020 and the letter will be asking you for about $200.
The penalty (and interest) is on the full amount of underwithholding, not just the amount below the safe harbor.
Seth
Seth:P Think Seth. . The penalty is on the full amount of underwithholding which IS the amount under the Safe Harbor. Read form 2210.
ed
Except I think the OP has the safe harbor rule wrong. It's 100% of last year's tax, 90% of this year's tax, or this year's tax - $1,000, whichever is lowest.
Ed and Seth are mistaken.
Duke, Barry and I are correct.
I think ed is correct; read again?
Ed said, "So you missed it by 10.05% , not .05%.. If ..05% = $20, then 10.05% = $4,020 and the letter will be asking you for about $200" which, if Form 2210 and related instructions are to be believed, is incorrect.
I went to ed2, and missed ed1. Sorry; my confusion.
I'm unable to comment on ed1, about the $4,000 and the $200.
I think ed2: "The penalty is on the full amount of underwithholding which IS the amount under the Safe Harbor." is correct, at the second post by ed, "ed2".
========================================= MODERATOR'S COMMENT: Please delete all unnecessary text from the prior post when responding.
On Apr 7, 4:14 pm, LoTax wrote:>
It isn't clear to me from "ed2" that ed understands he was mistaken in "ed1."
I was responding to a different post in "ed1" than in "ed2". but I am correct in both. If my math is off, let me know what you think it shoud be.
ed3
It's simiple arithmatic. He thought paying 89.05% of last year's tax was almost sufficient, missing it by only .05%. We know it has to be
100% so he missed it by 10.05%, not .05%. He figured the underpayment would be $20 on .05%, and the penalty they'd be writing him for would be $1.. 10% is 200 times .05 so his underpayment is 200 times $20, plus $20 or $4,020. Using the short method for 2007 of .0505 times the underpayment of $4,020 is a penalty of $203.01.ed
No, it has to be 90%. As long as the quarterly estimated deposits are equal in amount, paid on time and add up to at least 90% of the tax liability then the penalty is zero.
If you work through an example using Form 2210 and follow the instructions you will see your error.
By the way, if I'm wrong, then so is ProSeries 2007. That software yields an underpayment penalty of $5 with these facts: Tax liability = $19,668 Total estimated payments (equal in amount and on time) = $17,600 Total underpayment = $2,068 Required payments (line 10 of Form 2210) = $17,701 Amount upon which the penalty is computed (line 14) = $101 Penalty (line 15) = $5
Yes, simple arithmetic.
We're talking about LAST YEAR's tax liability. The 90% requirement applies to THIS year's liability.
Suppose your tax last year was $10,000, this year it's $15,000, and your withholding+estimated is $8,000. Your required payments is 100% of $10K, because this is lower than 90% of $15K, so your underpayment is $2K.
If it were the other way around, where last year's tax was $15K and this year's is $10K, your required payments would be $9K, so your underpayment would be only $1K.
No, just you are wrong. GIGO. You didn't read the original post and nowhere are actual tax amounts mentioned so I don't know where you got your examples, but it's wrong for this problem. If, in your example the $19,068 was LAST YEAR'S tax ( as it was in kDukes OP) your example is wrong, isn't it? Look at Barry's comments following. He can see why I'm right. Maybe if you re-read the OP and mine again it will become clear to you also. And thank you Barry and LoTax for your confidence. Duke thought the safe harbor was 90% of last year. He never mentioned current year so it must have been greater than last year. Anyway the math is on last year's correct amount based on Duke's statement.
ed
And your penalty would be zero whether your paid that $9,000 with withholding or with equal quarterly estimated payments.
Aside to ed: Please continue to have your clients pay too much underestimated tax penalty. Maybe you'll do enough of them for class action status to be granted when you're sued.
C***. You are correct. I cannot read. I apologize.
Ed, if I could kill this post I would. I apologize again.
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