Massachusetts Income Tax Penalty M-2210 (2023 Update)

I accidentally asked Massachusetts to figure out my penalty for 2021 and it gave me a small penalty, less than $50. I have appealed and filed M-2210 with part 2 filled out for 2021 because our withholding was uneven throughout the year and I wanted to use the actual withholding dates. Using the actual withholding dates, I do not believe that I owe a penalty. I did not fill out part 4, annualized income. I am being told by the tax examiner that I cannot claim "front loading" of withholding without also filling out part 4 "annualized income". This does not seem correct to me but I am not sure what to do short of just paying the penalty.

Identifying the amount of withholding for each of the 4 dates involves looking at 8 paycheck stubs. Identifying the actual income by each date involves looking at every quarterly statement from every account that I have and is too time consuming given the small penalty.

I am asking because I have been using this method for years and including M-2210 with just part 2 filled out and need to know whether I really need to track my income to fill out annualized income in the future. Using the dates of actual withholding seems to work fine for federal (I think).

Thanks in advance.

The Massachusetts M-2210 form is used to request relief from a penalty for underpayment of estimated taxes. According to the Massachusetts Department of Revenue, the form should be used to request relief from the penalty if you can demonstrate that the underpayment was due to one of the following reasons: a substantial error, a casualty, disaster, or other unusual circumstance, or a delay caused by action of the Department of Revenue.

It sounds like you have appealed the penalty and have submitted the M-2210 form with Part 2 filled out, which relates to the actual withholding dates. However, the tax examiner is requiring that you also fill out Part 4, which relates to annualized income.

According to the Massachusetts Department of Revenue, taxpayers may use the annualized income installment method to calculate their estimated tax payments if their income is not evenly distributed throughout the year. By using this method, taxpayers can calculate their estimated tax payments based on the actual income received during each quarter of the year, rather than estimating their income based on the previous year's tax return.

While it's not necessarily required to fill out part 4, annualized income, in order to claim "front loading" of withholding, it's important to note that the Massachusetts tax code states that if the taxpayer has substantial underpayment due to the front loading of withholding, they may use the annualized income installment method to calculate their estimated tax payments.

It seems like you have a good faith belief that the underpayment was due to uneven withholding throughout the year, and that the method you have been using for years has been working for you. However, the tax examiner may require more information to verify your claim. It's also important to note that the decision of the tax examiner can be appealed and if you still disagree with the decision, you can reach out to the Massachusetts Department of Revenue's Office of Appeals.

It's recommended that you consult with a professional tax advisor to help navigate the process and ensure that you are following the correct rules and regulations