Form 2210 Underpayment of tax

ZRocky Member Posts: 3 Newcomer

FreeTax says that I have to pay a penalty of $331 for 2023. I was retired all of last year but my only income is interest, dividends and a Roth conversion that I did the last week of December 2023.
How does form 2210 apply?

Any help is appreciated

Best Answer

  • MatthewD
    MatthewD FreeTaxUSA Team Posts: 247
    Answer ✓

    Hi ZRocky,

    First, you may want to read this Community Article on the Underpayment Penalty.

    Basically this can happen under the following conditions.

    There are 3 requirements the IRS has for paying estimated taxes to avoid any underpayments penalties.

    1. You owe less than $1,000 in tax after subtracting withholdings and credits, or
    2. You paid at least 90% of the tax for the current year, or
    3. You paid 100% of the tax shown on the return for the prior year (special rule applies to higher income taxpayers).

    Ask yourself these questions:

    • Was my total tax due less than $1,000?
    • Did I pay at least 90% of the current total tax this year?
    • Did I pay at least 100% this year of the total tax last year?

    If you answer, No, to any of those questions, then that would explain why you have a tax penalty in 2023, even when you are retired and your income came from, "interest, dividends and a Roth conversion…"

    You may want to consider making estimated payments in 2024 and future years to avoid this situation again.