State tax assessment

Yesterday I received an "Official Assessment and Demand for Payment" from my state's Department of Revenue. They claim that I owe an estimated tax underpayment penalty for 2014. After reading through the letter very carefully and then going back and checking my ET payment records, I'm certain that I did pay all est. taxes on time and this is some sort of clerical error.

However... here's the rub. First, the penalty is only for $25. Second, in order to appeal this, I have to compile a bunch of documentation, fill out some forms, and mail all this to 3 different departments via certified mail. The mailing fees alone will be at least $5 or $6, I'm guessing, not to mention the aggravation and time spent compiling the docs and dealing with the post office.

What really irks me is not the $25, which of course is pretty trivial in the grand scheme. It's just the blatant unfairness of it, when I know I've done everything right and shouldn't owe this penalty at all. I have documented proof that I paid all estimated taxes on time, but the appeals process is so bureaucratic and time consuming that it's really not even worth the effort. If I did appeal, it would be primarily to claim a moral victory over an inept government agency. On the other hand, if I just pay it, then I'm essentially supporting these clowns and their broken process which will likely contribute to its continuing to happen to other innocent taxpayers down the line.

Just curious, what would you do in my situation?

Look at it another way...what's the value of your time to compile, go to Post Office, pay certified fees, etc, etc? As much as it may tick you off and leave you with a feeling that you are enabling their inept ways I think I would probably just pay it and move on.

Seems like they are going crazy sending these out. My friend just got one for their 9 year old son. He does have to pay taxes and because his parents are in the highest tax bracket, the poor kid gets hit pretty hard, but all his dividends come in December so he doesn't actually have to pay estimated taxes as he has no income the rest of the year. They are filing the paperwork even though theirs was $60, but its more because they are worried this will happen over and over again, so hoping to stop it up front.

I would file the paperwork. Otherwise, you are likely to get similar notices every year and then get singled out for a noncompliance audit.

I think you'd be ticked off for a longer time while you were putting together all the doc, driving to the post office, etc. Especially if something comes back on a technicality and you have to do more work. Write a check and put it in an envelope and be done with it, is what I'd do. Maybe write an angry letter saying you did it all right but it's not worth fighting if you'll feel better sending it. There is no choice that would make my happy, so I'd do the one that causes me the least pain.

I know for fed estimated taxes, if you don't pay even amounts through the year or more early, you have to itemize all income, deductions and payments to prove that you paid accurately each quarter. Is is possible you missed doing something like this for state? You may have validly paid $200, 200, 200 and $600 in quarters 1-4, but unless you show that you had 1/6 of your income-deductions in the first 3 quarters and 1/2 in the final quarter, they are going to charge you for underpayment early.

Sojourner said:

Just curious, what would you do in my situation?

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I'm retired and keep good records, so I'd prepare the paperwork necessary to refute the claim or realize my miscalculation. Past state tax audits have usually, but not always, resulted in my favor - we all make mistakes.

If I were working I'd not give it a second thought, pay it and worry about other things. Either way, I wouldn't let it get under my skin - life is too short.

I go through this every year (3 years in a row now) because I use the installment method and Turbo Tax doesn't file the forms for my state electronically. I just send them a letter with the facts as to why I don't owe and include in the mailing the appropriate forms.

The form parallels the Federal Form 2210.

In my case it is $175 so it is worth my effort. In fact, the lady at the tax dept and I have a good relationship and I talk with her once a year. The first year took a bit of effort, but since then it has been smooth sailing.

If your state has an underpayment penalty form fill it out and if it shows you owe nothing as you think then send them a letter explaining why and the form. They should have documentation of what you paid and when and your return, so I'm not sure what more they need.

MichaelB said:

If I were working I'd not give it a second thought, pay it and worry about other things. Either way, I wouldn't let it get under my skin - life is too short.

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I like to consider myself semi-retired, as I still do some consulting work on a part-time basis for a few different clients. And I agree -- I am not going to let it get under my skin considering the fairly small amount of money involved. Like I said, it's just galling to be fined for something that I know I did correctly. Ultimately, though, it's probably not worth the time, effort, and aggravation to file all the appeals paperwork.

MichaelB said:

I'm retired and keep good records, so I'd prepare the paperwork necessary to refute the claim or realize my miscalculation. Past state tax audits have usually, but not always, resulted in my favor - we all make mistakes.

If I were working I'd not give it a second thought, pay it and worry about other things. Either way, I wouldn't let it get under my skin - life is too short.

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You are certainly 100% correct, Michael. But some of us just cant be rational and let it go. Its like me and Direct Tv. I burn every time I see them offering "free HD" to new subscribers and I was getting smacked with the $10 charge. I finally called this week and got them to knock off $10 for the next year. Certainly wasn't worth my time, but now I feel like they haven't screwed me over. Im sure OP feels the same way. And the worst part isn't the possible error on their end, its the hopeless maze to right a wrong that is demoralizing!


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I consider it my duty, as retired with an attitude, to grind the bastards down for all the poor working schmucks that just have to suck it up. Now where's my cape?

I sent in the paperwork for a $7 rebate on a 1.75 l bottle of booze, they sent me a check for $4 which would correspond to the rebate for the 0.75 l bottle. I had a copy of the original rebate and recipe I mailed them. I sent the a copy of it with a letter protesting and they sent me a check for $3 they had omitted.

I suspect they were either sloppy or figured no one would save a copy. But I've filled out paperwork for a $3 rebate and figured it was worth the few minutes to protest and get the last $3. There's some feeling of gratification to set them straight and let them know that people are paying attention to what they are doing.

I also protested my real estate tax assessment went from +19% to +2% last year and +0% this year so I didn't protest it.

So +1 for protesting it!

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StikyBoots said:

I sent in the paperwork for a $7 rebate on a 1.75 l bottle of booze, they sent me a check for $4 which would correspond to the rebate for the 0.75 l bottle. I had a copy of the original rebate and recipe I mailed them. I sent the a copy of it with a letter protesting and they sent me a check for $3 they had omitted.

I suspect they were either sloppy or figured no one would save a copy. But I've filled out paperwork for a $3 rebate and figured it was worth the few minutes to protest and get the last $3. There's some feeling of gratification to set them straight and let them know that people are paying attention to what they are doing.

I also protested my real estate tax assessment went from +19% to +2% last year and +0% this year so I didn't protest it.

So +1 for protesting it!

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You and Travelover are heroes of mine then...Maybe this will motivate Sojourner to finish the voyage that may lead into the abyss. ...Those rebates infuriate me. Those damn beancounters sit in a room and say. "Lets offer a rebate and it will entice 50% more purchases, though the idiots wont be able to follow all our rules to receive it and only 5% of them will ever actually get the rebate." So I refuse to ever buy anything with a rebate because I know I will be a victim!


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pb4uski said:

If your state has an underpayment penalty form fill it out and if it shows you owe nothing as you think then send them a letter explaining why and the form. They should have documentation of what you paid and when and your return, so I'm not sure what more they need.

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Thanks for this suggestion. I just checked, and my state does have such a form. I will need to fill this out for tax year 2015, for sure.

MichaelB said:

I'm retired and keep good records, so I'd prepare the paperwork necessary to refute the claim or realize my miscalculation. Past state tax audits have usually, but not always, resulted in my favor - we all make mistakes.

If I were working I'd not give it a second thought, pay it and worry about other things. Either way, I wouldn't let it get under my skin - life is too short.

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travelover said:

I consider it my duty, as retired with an attitude, to grind the bastards down for all the poor working schmucks that just have to suck it up. Now where's my cape?

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What they said. I'd do the paperwork and then I'd have material to post in the "What did you do today?" thread. And like someone else mentioned it is perhaps heading off it happening again.

Speaking of assessments, we got the form today for property and personal property tax. The good news is that now that I'm 65 I qualify for the WV Homestead Exemption, meaning that the first $20k of assessed value is exempted. While I haven't done the math yet, I doubt this will mean a significant amount. It might be enough to take DW out to dinner.

Sojourner said:

What really irks me is not the $25, which of course is pretty trivial in the grand scheme. It's just the blatant unfairness of it, when I know I've done everything right and shouldn't owe this penalty at all.

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I suspect that throughout your life, there had to have been worse (and perhaps more expensive) unfairnesses thrown your way.

I hear ya, but I'd just pay the $25 bucks, have a drink, get on with life and be done with it. The $25 is worth not having to deal with these schmoes.

Just curious, did you check to see it it was legit? Several years ago there was an IRS scam going around stating you owed a small sum. Less than $50, and an address where to send the check. Looked very legit, but it wasn't. If you called the number on the letter they confirmed, however, the number did not match the local IRS and they said it was a scam.

Once, the State sent me a letter saying that I had missed one of my quarterly estimated tax payments. I pay via their automated online system, the state's version of the federal EFTPS. Funny thing was that I could go into the state's online tax payment system and see all 4 of my payments. When I pointed this out to them, the matter was resolved pretty easily.

life is unfair

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said the wise man who raised me, toiled long hours to send me to college, died 6 months after he retired at 65.

Got a letter similar to the OP's from our state a couple of years ago for the same scenario -

Since I've retired, I do part time consulting work (very little these days) and that income is very uneven, but Fed/State taxes paid as the work is done. Our taxable investments do not allow for us to have Fed/State taxes withheld (our state does not tax retirement income). I have been managing our income to minimize taxes and don't have to pay estimated state taxes - until a good year in taxable investments with a rebalance pushed me over the estimated tax threshold. I paid the taxes as an annualization payment at the time of the mid-year rebalance and moved on (the state's guidance as I called them when I anticipated the tax issue at the end of the year). Got a nice taxable capital gain at the end of the year and paid the taxes on that before the end of the year for tax purposes. Expected a slight refund as I wanted to make sure that I was a few bucks over ($8.00 to be exact).

To my surprise the state sent me a letter stating that I should have paid estimated taxes 1st qtr, and not only was I not getting my $8.00 back - I owed a penalty for the underpayement of 1st qtr. This is a catch-22 scenario, as there is no way to go back and pay those 1st qtr taxes when the later in the year mentioned scenario pushes you over the tax threshold. As mentioned, I was using the state's income annualization method (both manual form and Turbo Tax) and it did not show any owed.

I knew per my calculations, that I didn't underpay taxes in the 1st qtr and set out to protest it. What I found out was that the state always looks at earned income as evenly earned every quarter. This brought about the underpayment scenario. For proof of uneven earned income - they want pay stubs as verification. I had to get a letter from the company I do work for (showing taxes paid and when) as I don't get pay stubs. After going back and forth for the better part of that year - they finally accepted my original tax scenario, but their computation left me with only a $7.00 dollar refund instead of the $8.00. All of my computations submitted were done with Turbo Tax. I gave up protesting at the $1.00 difference and let them keep it.

My earned income is still uneven and Fed/state taxes are paid as they are earned. I still use the state's annualization method for computing if I owe any quarterly taxes, but have not had an an issue with the state since then (knock on wood). I do file by print-and-mail with a letter from my employer showing income earned and when....

karen1972 said:

Seems like they are going crazy sending these out. My friend just got one for their 9 year old son. He does have to pay taxes and because his parents are in the highest tax bracket, the poor kid gets hit pretty hard, but all his dividends come in December so he doesn't actually have to pay estimated taxes as he has no income the rest of the year. They are filing the paperwork even though theirs was $60, but its more because they are worried this will happen over and over again, so hoping to stop it up front.

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I got one of these too, Delaware. Wife's income is "lumpy" and dividends come at year end.

So I paid enough tax and I paid it "early enough" through my estimated tax payments.

But the form to figure taxes quarterly is a "bear" - and I gave up and just paid it - you have to prorate your income and expenses every quarter...

http://www.revenue.delaware.gov/services/current_pit/TY14_de2210e.pdf

Sojourner said:

I like to consider myself semi-retired, as I still do some consulting work on a part-time basis for a few different clients. And I agree -- I am not going to let it get under my skin considering the fairly small amount of money involved. Like I said, it's just galling to be fined for something that I know I did correctly. Ultimately, though, it's probably not worth the time, effort, and aggravation to file all the appeals paperwork.

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What if it happens again next year and it's more money? I'd appeal and see whose error it was and try to stop it from happening again.

DW just got a license plate renewal notice in the mail for her Honda CRV - $1650. According to the online calculator it should be $140. Should be an interesting conversation at the DMV.

travelover said:

DW just got a license plate renewal notice in the mail for her Honda CRV - $1650. According to the online calculator it should be $140. Should be an interesting conversation at the DMV.

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What? That's one heck of a difference. Good luck with this and let us know how it goes.

Sojourner said:

Yesterday I received an "Official Assessment and Demand for Payment" from my state's Department of Revenue. They claim that I owe an estimated tax underpayment penalty for 2014. After reading through the letter very carefully and then going back and checking my ET payment records, I'm certain that I did pay all est. taxes on time and this is some sort of clerical error.

However... here's the rub. First, the penalty is only for $25. Second, in order to appeal this, I have to compile a bunch of documentation, fill out some forms, and mail all this to 3 different departments via certified mail. The mailing fees alone will be at least $5 or $6, I'm guessing, not to mention the aggravation and time spent compiling the docs and dealing with the post office.

What really irks me is not the $25, which of course is pretty trivial in the grand scheme. It's just the blatant unfairness of it, when I know I've done everything right and shouldn't owe this penalty at all. I have documented proof that I paid all estimated taxes on time, but the appeals process is so bureaucratic and time consuming that it's really not even worth the effort. If I did appeal, it would be primarily to claim a moral victory over an inept government agency. On the other hand, if I just pay it, then I'm essentially supporting these clowns and their broken process which will likely contribute to its continuing to happen to other innocent taxpayers down the line.

Just curious, what would you do in my situation?

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If it is legit, I'd pay it and/or send in copies of your previous payments.

Maybe 2 years ago, my state sent me a notice that I hadn't sent in estimated tax payments. I had sent in 4 quarterly checks, and the amounts were sufficient enough to make me worried they didn't get it (like $800 per check). They asked for copies of the cancelled checks, so I went online and downloaded copies of the cashed checks.

Funny how they suddenly resolved the issue after I sent them copies of the checks! I wonder where the money was credited in the state coffers before they agreed I had paid up??

TurboTax said I underpaid and added the $10 penalty to my payment to send in. Six weeks later I received a $10 refund from my state. Go figure.