Author Topic: IRS pre-payment penalty + refund?  (Read 516 times)

Mighty-Dollar

  • Bristles
  • ***
  • Posts: 361
IRS pre-payment penalty + refund?
« on: January 08, 2018, 11:46:30 PM »
I was assessed a $51 penalty for not prepaying tax, yet I was also issued a tax refund of almost $2,000, all in regards to my 2016 return. Does that sound right? Is that possible? I'm just wondering if the IRS made a mistake.

Sibley

  • Magnum Stache
  • ******
  • Posts: 3168
  • Age: 33
  • Location: Chicago, IL
Re: IRS pre-payment penalty + refund?
« Reply #1 on: January 09, 2018, 08:13:55 AM »
Yes, it's possible. There are certain situations where you are REQUIRED to do quarterly estimated tax payments. So, did you? If not, figure out what's triggering them to say you have to. IRS.gov is your friend here.

If you don't think you fall into whatever category that is required to do estimates, then you can try to argue with the IRS. However, if you do meet that requirement, then you need to start doing quarterly payments or else you'll have more penalties.

Please note that if you do one massive estimated payment in January for the year, that probably won't meet their requirements.

sokoloff

  • Handlebar Stache
  • *****
  • Posts: 1198
Re: IRS pre-payment penalty + refund?
« Reply #2 on: January 09, 2018, 03:15:32 PM »
If you do a  payment in January for the prior year, it won't count (much) towards avoiding the penalty. If you do a payment in January for the coming year, it will (though it's not due until April).

The penalty calculation is complex enough that in years where I don't meet a safe harbor, I just let the IRS calculate the penalty and tell me how much to pay. Topic 306 gives an overview.

Mighty-Dollar

  • Bristles
  • ***
  • Posts: 361
Re: IRS pre-payment penalty + refund?
« Reply #3 on: January 09, 2018, 06:12:39 PM »
Instead of making prepayments in the 4 installments or whatever it was, I paid all in one check before April 15th. So one payment was on time and the other 3 were paid early.

sokoloff

  • Handlebar Stache
  • *****
  • Posts: 1198
Re: IRS pre-payment penalty + refund?
« Reply #4 on: January 09, 2018, 06:21:11 PM »
For those who are part W-2 and part other income, any W-2 withholding can be treated as having occurred equally across the year, even if you pump up your withholding allowances (W-4) at the start of the year and then over-withhold at the back end of the year.

Sibley

  • Magnum Stache
  • ******
  • Posts: 3168
  • Age: 33
  • Location: Chicago, IL
Re: IRS pre-payment penalty + refund?
« Reply #5 on: January 10, 2018, 02:21:19 PM »
Instead of making prepayments in the 4 installments or whatever it was, I paid all in one check before April 15th. So one payment was on time and the other 3 were paid early.

That's why you're getting a penalty. IRS discourages that. It's more hassle, but unless you're willing to pay the penalty do the quarterly payments.

sokoloff

  • Handlebar Stache
  • *****
  • Posts: 1198
Re: IRS pre-payment penalty + refund?
« Reply #6 on: January 10, 2018, 03:17:45 PM »
Instead of making prepayments in the 4 installments or whatever it was, I paid all in one check before April 15th. So one payment was on time and the other 3 were paid early.
That's why you're getting a penalty. IRS discourages that. It's more hassle, but unless you're willing to pay the penalty do the quarterly payments.
I believe that's entirely incorrect.

Paying in one lump sum early will not result in a penalty (assuming the total amount is correct) as every payment is on time or early.

See page 3 of Form 2210 for the way that "rollovers" of excess amounts of estimated tax payment are treated from one period to the next. Overpaying early does not result in penalties.

MDM

  • Walrus Stache
  • *******
  • Posts: 8590
Re: IRS pre-payment penalty + refund?
« Reply #7 on: January 10, 2018, 04:55:09 PM »
Instead of making prepayments in the 4 installments or whatever it was, I paid all in one check before April 15th. So one payment was on time and the other 3 were paid early.
That's why you're getting a penalty. IRS discourages that. It's more hassle, but unless you're willing to pay the penalty do the quarterly payments.
I believe that's entirely incorrect.

Paying in one lump sum early will not result in a penalty (assuming the total amount is correct) as every payment is on time or early.

See page 3 of Form 2210 for the way that "rollovers" of excess amounts of estimated tax payment are treated from one period to the next. Overpaying early does not result in penalties.
sokoloff's analysis appears correct.

Mighty-Dollar, do you have a copy of your 2016 Form 2210?  Was Schedule AI (page 4 of Form 2210) completed?  Does studying that form help explain things?