IRS Underpayment safeharbor specifics

[dandarc]

Probably a stupid question, but just to verify - when we talk about there being no penalty so long as you've paid / withheld at least 100% of the tax for prior year, we're talking about 100% of the number on 1040 line 16 - Tax?

About to send an estimated tax payment for 2024, and thought I'd just double-check that - the coupons Turbotax sent seems to take into account a non-refundable tax credit we're not getting again AND withholding, so I'm a bit flummoxed.

[MDM]

It starts with line 22 of form 1040.  See line 8 instructions in https://www.irs.gov/pub/irs-pdf/i2210.pdf for all the details.

[seattlecyclone]

From the 1040 instructions:

Exception. You won't owe the penalty if your 2022 tax return was for a tax year of 12 full months and either of the following applies.

• You had no tax shown on your 2022 return and you were a U.S. citizen or resident for all of 2022.
• The total of lines 25d, 26, and Schedule 3, line 11, on your 2023 return is at least 100% of the tax shown on your 2022 return (110% of that amount if you aren't a farmer or fisherman, and your adjusted gross income (AGI) shown on your 2022 return was more than $150,000 (more than $75,000 if married filing separately for 2023)). Your estimated tax payments for 2023 must have been made on time and for the required amount.

For most people, the “tax shown on your 2022 return” is the amount on your 2022 Form 1040 or 1040-SR, line 24, minus the total of any amounts shown on lines 27, 28, and 29; Schedule 3, lines 9, 12, 13b, and 13h; and Forms 8828, 4137, 5329 (Parts III through IX only), and 8919. Also subtract from line 24 any:

• Tax on an excess parachute payment,
• Excise tax on insider stock compensation of an expatriated corporation,
• Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance, and
• Look-back interest due under section 167(g) or 460(b).

When figuring the amount on line 24, include household employment taxes only if line 25d is more than zero or you would have owed the estimated tax penalty for 2022 even if you didn't include those taxes.
If the Exception just described doesn't apply, see the Instructions for Form 2210 for other situations in which you may be able to lower your penalty by filing Form 2210.

[dandarc]

Thanks - line 22 it is (None of the credits to subtract, nor items from schedule 2 to take into account - having zeros on all that stuff makes it easier.).

So gonna temper my enthusiasm around CC points (if reward > 1.82%, you can put taxes on card and make a profit), and just do line 22 over 4. Then probably send more than that for Q4 when the unknowns are more known.

[terran]

The safe harbor only works if you pay in 4 equal installments. If you you pay more in Q4 you'll have to fill out the more complicated lower portions of the form 2210. You still may not owe a penalty depending on when your income was received, but the safe harbor doesn't apply.

[seattlecyclone]

The safe harbor only works if you pay in 4 equal installments. If you you pay more in Q4 you'll have to fill out the more complicated lower portions of the form 2210. You still may not owe a penalty depending on when your income was received, but the safe harbor doesn't apply.

If you pay (safe harbor / 4) each quarter that's sufficient. We all agree on that, right? Are you saying that if you pay (safe harbor / 4) each of the first three quarters and then (safe harbor / 4) + $100 in the fourth quarter it's possible you'll owe penalties? And you should wait to pay the extra $100 until after you file? That seems like a backward policy.

[MDM]

"Safe harbor" can be a semantic issue.  See the BH wiki discussion about Safe harbors for the various ways one can "avoid underpayment penalties".  That latter quoted phrase is likely what all but the pedantic mean when discussing the former quoted phrase.

[terran]

The safe harbor only works if you pay in 4 equal installments. If you you pay more in Q4 you'll have to fill out the more complicated lower portions of the form 2210. You still may not owe a penalty depending on when your income was received, but the safe harbor doesn't apply.

If you pay (safe harbor / 4) each quarter that's sufficient. We all agree on that, right? Are you saying that if you pay (safe harbor / 4) each of the first three quarters and then (safe harbor / 4) + $100 in the fourth quarter it's possible you'll owe penalties? And you should wait to pay the extra $100 until after you file? That seems like a backward policy.

I could be getting turned around. Probably best to fill out form 2210 until it either says not to finish or you've calculated the penalty, if any, for a given situation.

[dandarc]

The safe harbor only works if you pay in 4 equal installments. If you you pay more in Q4 you'll have to fill out the more complicated lower portions of the form 2210. You still may not owe a penalty depending on when your income was received, but the safe harbor doesn't apply.

If you pay (safe harbor / 4) each quarter that's sufficient. We all agree on that, right? Are you saying that if you pay (safe harbor / 4) each of the first three quarters and then (safe harbor / 4) + $100 in the fourth quarter it's possible you'll owe penalties? And you should wait to pay the extra $100 until after you file? That seems like a backward policy.

I could be getting turned around. Probably best to fill out form 2210 until it either says not to finish or you've calculated the penalty, if any, for a given situation.

If you look at part III grid, you put in 25% of line 9 (required annual payment) for each quarter. Then you put in your estimated tax payments for each quarter. The rest of that worksheet is just figuring whether you over / under paid each quarter, and carrying over any difference to the next quarter. Since I'm personally paying a bit more than last year's tax from line 22 / 4 (and I don't have any other adjustments), I'm going to be good on the penalty computation - line 17 will just be zeros all the way across.

So what I did yesterday is take line 22 (no other adjustments in our case), divide by 4. Rounded up to next hundred and sent that in via the lowest cost CC processor. I'll do the same amount in June and September. Then by January, I should have a really good idea of our actual tax bill and I can adjust accordingly.

[terran]

I think you're probably right. I think you could also make the January payment the same as the other payments and pay whatever you actually owe in April.