Obamacare Tax Credit Question

[scrabbler1]

If you have a large, unforeseen late-December taxable event that throws you out of safe harbor, then what you should do is easy... make an estimated payment for the taxes on the unforeseen items by January 15th... and if you fail to then, yes... you can be penalized for that.

If you make that estimated payment then you might have to fill out Schedule AI, but you won't owe a penalty.

I do make the 4th quarter estimated tax payment, something I have been doing for several years. But filling out Schedule AI (Form 2210) will show that I should have paid estimated taxes for some prior quarters even though Form 1040ES told me I didn't have to pay any. This is the disconnect we have been discussing in this thread about the rules of Form 1040ES, which says I don't have to make estimated tax payments for those earlier quarters, and Form 2210, which says I should have made estimated tax payments for those earlier quarters (and penalties) - but it tells me that at least 3 months too late!

 

[pb4uski]

I guess I can see that happening. Let's say that the cliff is $70k for the year and you get $20k of income in the first quarter.... while annualizing your income would be $80k and put you over the cliff you still think that your income for the year will be below the cliff so you don't make an estimated payment... and then you get some income "surprise" that puts you over for the year and technically you owe a penalty for that first quarter.

I think in that case you request a waiver of the penalty.

If you have an underpayment, all or part of the penalty for that underpayment will be waived if the IRS determines that:

• In 2018 or 2019, you retired after reaching age 62 or became disabled, and your underpayment was due to reasonable cause (and not willful neglect); or
• The underpayment was due to a casualty, disaster, or other unusual circumstance, and it would be inequitable to impose the penalty. For federally declared disaster areas, see Federally declared disaster, later.

To request any of the above waivers, do the following.
....Attach Form 2210 and a statement to your return explaining the reasons you were unable to meet the estimated tax requirements and the time period for which you are requesting a waiver.
... If you’re requesting a waiver due to a casualty, disaster (other than a federally declared disaster, as discussed next), or other unusual circumstance, attach documentation such as copies of police and insurance company reports.


The IRS will review the information you provide and decide whether to grant your request for a waiver.

But it probably won't be fun.

 

[scrabbler1]

My "unusual circumstance" is not due to some disaster or tragic event. It is because my estimated tax liability of the year (when I first completed the form), as shown in Form 1040ES, Line 14b, was going to be less than $1,000. It said, "You are not required to make estimated tax payments." So, I didn't.

Given the choice between filing Form 2210, making the IRS aware of a possible penalty, and having to explain why I don't have to pay it, versus remaining silent and not filing Form 2210 (and keeping the explanation in my back pocket), I choose against "awakening the sleeping dog" called the IRS and opt for the latter.