IRS Form 2210 walkthrough (Underpayment of Estimated Tax by Individuals, Estates, and Trusts)

[@garybenhart]

I don't understand the Form 2210, Section A amounts @ 26:50 in the video. Line 10 indicates the Required installments total was $ 5,000 (1250+1250+1250+1250) while Line 11 indicates the Estimated tax paid/tax withheld total was $ 1,500 (400+300+400+400). To me, that seems to indicate the net Underpayment of taxes was $ 3,500 ($ 5,000 - $ 1,500), with underpayments in each of the four periods (i.e. no over-payments). Line 17, however, indicates the Underpayment total was $ 4,600 (850+1250+1250+1250), and these amounts are then carried over to Line 1a of the Form 2210, Part III, Section B Worksheet. Aren't you then paying interest on underpayments of $ 4,600 instead $ 3,500?

[@teachmepersonalfinance]

There's a difference between the net underpayment (for the year), vs. the underpayment for each payment period. For the entire year, there is a net underpayment of $3,500. However, the IRS breaks down underpayments based on the quarterly due date. At various points in time, there is accrued interest on the entire tax bill, *except* the original amount that was paid on the due date ($400). The rest of the payment has *some* interest accrued, because none of that balance was paid on time. The *amount* of interest owed depends on how late each particular payment was made. For due date 1 (4/15/23): The net underpayment is straightforward ($1250 - $400 = $850). However, you have to calculate interest on the outstanding amounts until they're paid off. This doesn't happen until the December payment, so you have to calculate outstanding interest on the following outstanding amounts: 4/15 - 6/30: $850 7/1 - 9/30: $500 10/1 - 12/31: $150 For due date 2 (6/15/23): Interest doesn't start accruing until the due date is reached. The first payment (not until December) brings the balance down to $1,000. For this payment, interest is calculated as follows: 6/15 - 6/30: $1,250 7/1 - 9/30: $1,250 10/1 - 12/31: $1,250 1/1 - 4/15: $1,000 For due dates 3 (9/15/23) and 4 (1/15/24): Interest doesn't start accruing until their respective due dates. But since the balance doesn't get paid until 4/15, the interest on the *entire balance* must be calculated from the due date until the date actually paid.

[@garybenhart]

@@teachmepersonalfinance If you owe the IRS $ 850 @ 04/15/2023 because you didn't make the appropriate estimated tax payment, you'll pay interest on the $ 850 until the next due date of 06/15/2023 (easy to calculate). At 06/15/2023, the balance owed then jumps by $ 950 to $ 1,800 because you didn't make the appropriate estimated tax pay. It shouldn't matter if you assume your $ 300 of Q2 estimated tax paid + tax withheld paid off the $ 850 from Q1 or the $ 950 from Q2, money is money. You'll need to pay interest on the $ 1,800 until the next due date of 09/15/2023 (easy to calculate). So you need to pay: 1> Interest on $ 850 from Q1 for 2 months (61 days) or $ 9.94 2> Interest on $ 1,800 from Q2 for 3 months (92 days) or $ 31.76 3> Interest on $ 2,650 from Q3 for 4 months (122 days) or $ 69.75 4> Interest on $ 3,500 from Q4 for 3 months (91 days) or $ 69.62 And the total interest calculated is $ 181.07 (which is essentially identical to the amount you calculated). Significantly easier to understand compared to this complex worksheet created by the IRS. Significantly fewer calculations. The IRS apparently wants you to use this complex worksheet which is found in the Form 2210 Instructions but that worksheet isn't even a required part of the tax return that is ultimately filed. It also points to lots of unnecessary complexity typically connected to the IRS. Why are there different interest rates set by the IRS for the rate period 2, rate period 3 and rate period 4? Are you kidding me? Also, if the due dates for your 2023/Q3 estimated tax is 09/15/2023 and your 2023/Q4 estimated tax is 01/15/2024, why would you then try to calculate interest on essentially a calendar quarter basis? According to the IRS worksheet, rate period 2 ends on 09/30/2023 and period 3 ends on 12/31/2023.

[@teachmepersonalfinance]

@@garybenhart I understand your logic. And I believe that the calculations are largely similar. This video simply was trying to explain the calculations as they appear on the worksheet. I have no influence on how the IRS generates forms or worksheets...I can only understand them the best that I can, then share that perspective with people who are looking to understand. With respect to interest rates: Interest rates are calculated as prescribed by law, and updated quarterly, based upon prevailing Federal Reserve short-term funds rates (plus percentage points, depending on the type of tax debt). You can read more here: www.irs.gov/payments/quarterly-interest-rates

[@malinois71]

When it ask for "Prior years tax" and in that year (2023) you got married do you combine both spouse Line 24 items? Also, is the $1000 or more owed for a possible pentaly doubled like most other things if married filing jointly? The way 2210's and all this stuff is worded makes it seem individual.

[@teachmepersonalfinance]

You would select 'E' in Part II. Then, complete Part I, but you don't need to calculate your penalty.

[@damzeni1]

Part II Reasons for Filing Box D - Going through every paystub. How do I calculate this?

[@teachmepersonalfinance]

I imagine that you would have to calculate the difference in interest on the penalty calculation worksheet located in the form instructions, for every single statement that you posted. You might want to calculate the penalty by itself (as that would be the MOST money that you save), then decide whether or not all of those calculations would be worth your time.

[@jessejames586]

so it looks like i won;t have a penalty for not paying estimated taxes for this year because all my income for this year is coming from a IRA distribution in december and for last year i has $0 for taxes owed?

[@teachmepersonalfinance]

That’s a possibility. I wouldn’t be able to know for certain without being able to look at your tax situation.

[@reimatoba321]

If I made an additional payment on 4/15/24 with my extension for 2023, do I enter that on Part I line 3? The additional payment is included on my schedule 3, but not listed in the instructions for 2210.

[@teachmepersonalfinance]

You would not include the additional payment in Line 3. Line 3 represents tax credits that may have accrued over the course of the year, such as the earned income credit, etc. A payment on the tax return's due date may be appropriate to avoid any late payment penalties due to filing an extension, but does not help calculate underwithholding penalties throughout the year. You would include this amount in Table 1, located in the form instructions.

[@indranillingayat4669]

Hi, @teachmepersonalfinance In line 2, IRS iinstructions say to enter total amount of Schedule 2 (Form 1040): Lines 4,8,9,10,11,12,14,15,16,17a,17c,17d,17e,17f,17g,17h,17i,17j,17l and 17z When I add all lines amount, my line 2 amount is 30x higher than line 1. Am I doing anything wrong? Or am I correct adding all these lines.

[@teachmepersonalfinance]

Those instructions are correct. I would go back through each line of Schedule 2 to make sure that you understand all of the additional taxes that are involved. Below is a link to an article and video that walk through Schedule 2 in more depth: IRS Schedule 2, Additional Taxes Article: www.teachmepersonalfinance.com/irs-schedule-2-instructions/ Video: kzbin.info/www/bejne/j5PCcqqndsSmhq8

[@sojanpulickal5555]

I already paid the penalty for paying not enough taxes, when I filed my 2023 tax return. Can I use form 2210 to get that penalty waived and get a reimbursement?

[@teachmepersonalfinance]

If you've previously paid penalties for late tax payments, you should consider filing IRS Form 843. This is the correct form for requesting a penalty abatement. IRS Form 843, Claim for Refund and Request for Abatement Article: www.teachmepersonalfinance.com/irs-form-843-instructions/ Video: kzbin.info/www/bejne/mJaqqJp4iJaMj6s

[@ArnieMac]

Is the "100 percent of 2022's tax bill" the total tax for 2022? (Line 24 on 1040) Or is it line 16 on 2022s 1040?

[@teachmepersonalfinance]

Actually, it's a little more complicated. It is Line 22 from your Form 1040, PLUS the following items from Schedule 2: Line 4, Line 8 (additional tax on distributions only), Line 9, Line 10, Line 11, Line 12, Line 14, Line 15, Line 16, Line 17a, Line 17c, Line 17d, Line 17e, Line 17f, Line 17g, Line 17h, Line 17i, Line 17j, Line 17l, and Line 17z MINUS the following items from Schedule 3: • Earned income credit. • Additional child tax credit. • Refundable part of the American opportunity credit (Form 8863, line 8). • Premium tax credit (Form 8962). • Credit for federal tax paid on fuels. • Qualified sick and family leave credits from Schedule(s) H (Schedule 3 (Form 1040), lines 13b and 13h). • Credit determined under section 1341(a)(5)(B).

[@workbutlive]

for line8: what if someone did not have to file last year what will they fill?

[@teachmepersonalfinance]

There is an exception for taxpayers who did not previously have to file: You won't have to pay the penalty or file this form if either of the following applies. • You had no tax liability for 2022, you were a U.S. citizen or resident alien for the entire year (or an estate of a domestic decedent or a domestic trust), and your 2022 tax return was (or would have been had you been required to file) for a full 12 months. • The total tax shown on your 2023 return minus the amount of tax you paid through withholding is less than $1,000. To determine whether the total tax is less than $1,000, complete Part I, lines 1 through 7.

[@BarryA.-sc5pi]

Where do you file IRS Form 2210? I can't find it on the instructions. Resident of Florida. Thanks

[@teachmepersonalfinance]

You would file IRS Form 2210 in conjunction with your tax return (Form 1040, Form 1040-NR, Form 1040-SR, or Form 1041). There is no unique filing location for Form 2210.

[@rdavis46]

why is HR block for 2023 taxes never saw this before and says 2023 tax liability (for 2024 form 2210 purposes) for $5,003?

[@rdavis46]

owe for federal and wi taxes

[@teachmepersonalfinance]

@@rdavis46 I don't know enough about your tax situation to adequately answer your question. Have you discussed this with the folks at H&R Block?

[@OURTABLE2017]

#taxes