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Form 2210 Underpayment of tax

ZRocky

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

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MatthewD

Hi ZRocky,

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

https://community.freetaxusa.com/kb/articles/62-what-is-the-underpayment-tax-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.

You owe less than $1,000 in tax after subtracting withholdings and credits, or
You paid at least 90% of the tax for the current year, or
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.

All comments

MatthewD

Hi ZRocky,

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

https://community.freetaxusa.com/kb/articles/62-what-is-the-underpayment-tax-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.

You owe less than $1,000 in tax after subtracting withholdings and credits, or
You paid at least 90% of the tax for the current year, or
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?

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

LaFong

https://community.freetaxusa.com/discussion/comment/1750#Comment_1750

My understanding is that this is not correct. It is an OR clause. If any of the conditions is Yes, then there should be no underpayment penalty.

JanaA

Hello LaFong!
The penalty typically applies when the total of your withholding and timely estimated tax payments didn't equal at least the smaller of:
- 90% of your 2023 tax
OR
- 100% of your 2022 tax (if your 2022 return covered a 12-month period)

Form 2210 is used to calculate the underpayment penalty, and FreeTaxUSA includes screens that walk you through this calculation. Going through the underpayment screens in the software may help lower your penalty if any exceptions apply to your situation.

You have two options:
1. Pay the penalty amount shown with your 2023 tax return
2. Leave the penalty off and let the IRS calculate it for you and send you a bill.

LaFong

Correct, that’s what I said. But I had to open a case because FreeTaxUSA calculated a penalty despite a timely estimated tax payment.

TaxMorgan

Hello LaFong,

Yes, we do recommend you contact our support team from inside your account for questions specific to your tax return, as we are able to view your account information in the software and see how things are being calculated. We can better assist you there.