File Late or Owe too Much?

If you owe more than $1000 to Uncle Sam, you could be liable for an Underpayment penalty.

Form 2210 is completed to compute the penalty and to request a waiver of the penalty. The penalty will be waived for the following reasons:

  1. Total withholding and estimated payments equal the smaller of 90% of the tax on the current year return  OR
  2. 100% of the tax shown on the prior year return. (110% if the prior year adjusted gross income (AGI) was over $150,000 ($75,000 for MFS).
  3. The taxpayer was a US citizen/resident and had no tax liability for the prior year tax return which covered 12 months.
  4. Any required estimates were paid in four equal timely payments.  Penalties are charged for any quarter that an estimate is late.
  5. If income varies throughout the year, as do estimates, the annualized income installment method on Form 2210 can be used to reduce or eliminate the penalty.
  6. Using actual payment dates for withholding can also reduce the penalty under certain cases.  There is a provision for this on the form as well.
  7. Form 2210 also allows for a request for a waiver of penalty in cases of casualty, disaster, or unususal circumstances.  Examples would be disability, retirement after age 62 and underpayment was due to reasonable cause, not willful neglect.
  8. Farmers and fishermen, as well as those with changes in marital status can also have reasons for waivers on this form.

In addition, if you filed or paid late, the IRS may abate your penalty under its First Time Abate program if you have paid or arranged to pay the tax due and have been tax-complieant for the past 3 years.  This isn’t widely known, and IRS won’t offer it.  Taxpayers have to request it.

This form, and these exceptions, aren’t always easy for a taxpayer to complete on his/her own.  If you find yourself owing over $1000, it might be time to ask a tax pro to review your return.




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