Got an IRS letter today saying I am being charged a $193.66 penalty for "failing to pay estimated taxes".

Letter text: "We reviewed your estimated tax enalty computation for the tax period ended 2021, and found an error. Our correction of this error increased the penalty to $193.66"

WTF is this? The math on the Billing summary doesn't make sense at all because it shows I paid tax appropriately. It shows the amount I owed, the amount of tax withheld, and my other payments and credits. Tax withheld plus other payments and credits equals the exact amount of tax owed. But right afterwards it has a line item for "failure to pay estimated tax penalty". According to their own math I paid exactly what was owed, yet I am being charged $194 anyway.

Anyone experienced this?

I got a similar letter and forwarded it to my CPA who does my taxes.

He said they removed $600 in charitable donations…as I also had $600 in damages due to a tornado ( catastrophe). IRS said I can’t have both!?! Not sure why.

His software that he gets from the IRS allowed both deductions so he thinks it’s an error on their part.

He is looking into it with them…

It had the tax I owed, penalty, and interest. Fucking bastards.

don't have any specific info, but how long ago did you guys file?

I just filed on the 17th.

I’m no expert but if you are self employed aren’t you required to pay quarterly estimates. I believe there are late penalties for not paying each quarter.

quote:

Letter text: "We reviewed your estimated tax enalty computation for the tax period ended 2021, and found an error. Our correction of this error increased the penalty to $193.66"

^^^^^^^^^^^^^^
This is why I have a CPA. WHat is your time worth? This sort of thing often takes quite amount of time to resolve. If I did not have a CPA I would pay it and move on. You will get even more angry trying to fix this.

quote:

Originally posted by frayedends:
I’m no expert but if you are self employed aren’t you required to pay quarterly estimates. I believe there are late penalties for not paying each quarter.

This is a possibility if you received a 1099 for some work. Your expected to pay quarterly taxes on those.

Not self employed, only income is from regular salaried work plus investments. And I filed 3 weeks ago.

quote:

Originally posted by radioman:
don't have any specific info, but how long ago did you guys file?

I just filed on the 17th.

I filed the end of March…

quote:

Originally posted by frayedends:
I’m no expert but if you are self employed aren’t you required to pay quarterly estimates. I believe there are late penalties for not paying each quarter.

the answer is no you are not required to pay quarterly taxes because they are only an estimate... the problem is if you do and do it wrong then they can penalize you and also if you pay some for the first quarter and then stop paying they can penalize you. How do I know this. Simple, I've been self employed for 39 year and have never paid quarterly taxes and never been penalized for it.

quote:

Originally posted by ZSMICHAEL:
This is why I have a CPA. WHat is your time worth? This sort of thing often takes quite amount of time to resolve. If I did not have a CPA I would pay it and move on. You will get even more angry trying to fix this.

I'm sure at this point in my life I could use TurboTax or some other software. What I'm paying my CPA for is to be in my corner if necessary plus I can call him with any questions I might have during the year.

quote:

Originally posted by frayedends:
I’m no expert but if you are self employed aren’t you required to pay quarterly estimates. I believe there are late penalties for not paying each quarter.

If you will own more than (I think) $1500, you are supposed to pay in quarterly. I usually try to owe 1-200$, but I've missed when I got some unexpected $$ (metric fuckton of overtime, promotion, bonus, etc). When it was >1500 owed, I got a penalty (no interest since I paid before 4/15).

If you have sufficient (I don’t remember the amount) non W-2 income (self-employed, investments, etc), you are required to pay quarterly estimates. Sell a bunch of stock in the first quarter, you need to make an appropriately sized estimated payment or when you fill out form 2210 you’ll see that you have an issue. There is enough nuance to it that if you haven’t dealt with it recently you’re better off getting an accountant’s help.

Edited to fix “your” to “you’re” and to thank Austin228 for mentioning the safe harbor provision. That is what I was alluding to with the nuance comment but didn’t remember the details. It has been years…

This message has been edited. Last edited by: slosig,

If you are nothing but withholding and are short 10 percent or more of the total tax they will penalize you on the shortfall. You may be able to reduce the penalty by calculating the income, related tax and withholdings on a quarterly basis (form 2210 and instructions) which may show that you were on track for several quarters but got behind in Q4 - i.e. big cap gain in Q4 jumped up the total tax but up to Q4 you were within the tolerances. You won't eliminate the penalty but may reduce it. Their calculation assumes your Q4 additional income (in my example) came in ratably through the year and therefore you were short in all quarters.

You may receive an estimated tax penalty as a W-2 employee or 1099 contractor unless safe harbor applies (see below)

You are required to pay your taxes while receiving your income when you earn it during the year, this is part of the law.

You can receive a penalty if you are not paying your taxes while you receive your income throughout the year.

There is a "safe harbour" - Safe Harbor as it applies to estimated taxes simply means that as long as the amount of withholding, credits and estimated tax paid in the current year is at least as much as the prior year's tax liability, the taxing authority may not impose underpayment of estimated tax interest or penalties.

To Remove or Reduce -
We may remove or reduce a penalty for failure to pay your estimated taxes in limited circumstances:

We may reduce a penalty if any of the following apply:

1. You or your spouse (if you file a joint return) retired in the past 2 years after reaching age 62 or became disabled and you had reasonable cause to underpay or pay your estimated tax late. See Waiver of Penalty in Instructions for Form 2210 PDF.

2. You had most of your income tax withheld early in the year instead of spreading it equally through the year. Complete Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts PDF.

3. Your income varies during the year. Complete Form 2210, Schedule AI, Annualized Income Installment Method PDF(found within the form).

This message has been edited. Last edited by: Austin228,

IRS: You owe us money
You: How much?
IRS: Guess
You: This Much?
IRS: No Jail

I’m still waiting for my 2020 year’s overpayment that my idiot accountant had me send in.

$2,000.

They can eat a dick.

quote:

Originally posted by slosig:
If you have sufficient (I don’t remember the amount) non W-2 income (self-employed, investments, etc), you are required to pay quarterly estimates. Sell a bunch of stock in the first quarter, you need to make an appropriately sized estimated payment or when you fill out form 2210 you’ll see that you have an issue. There is enough nuance to it that if you haven’t dealt with it recently you’re better off getting an accountant’s help.

Edited to fix “your” to “you’re” and to thank Austin228 for mentioning the safe harbor provision. That is what I was alluding to with the nuance comment but didn’t remember the details. It has been years…

God damn, the IRS and entire federal tax system is so incredibly stupid. Thank you for explaining this part of it though as I’m sure that’s what this is. I guess it’s not enough for them to bleed you dry twice per month and then tack on more at the end of the year, they have to penalize you for not paying it promptly enough…though I’m sure they don’t penalize themselves when handing out tax refunds. F the IRS. Taxation is theft.