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Old 12-20-2020, 05:59 PM   #41
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Thanks for not ratting me out to the IRS.

But remember, Form 1040ES's worksheet (not filed, of course) told me not to make any estimated tax payments for the first 3 quarters because my estimated tax liability would be less than $1,000, according to Line 14b's safe harbor provision. So, your statement that I wasn't keeping up with my tax liabilities is not true. That safe harbor provision simply told me that I can pay my entire tax liability by the following April when I file my annual return.

Then, in the 4th quarter, I get that big cap gains distribution. I update the 1040ES worksheet and make a 4th quarter estimated tax payment by Jan 15.

Then Form 2210 tells me at the end of the year that I should have been paying estimated tax during some of the first 3 quarters, contradicting the safe harbor I was actually that whole time (even if I subtract out a prorated part of the ACA subsidy for the first 3 quarters). And if I had tried to complete Form 2210 before I received that big cap gains distribution in the 4th quarter, I'd have hit the STOP on Part I, Line 4, the same safe harbor provision as in Form 1040ES which allowed me to not make any estimated tax payments for the first 3 quarters.

So, I ask again, how can one form (1040ES) tell me it is okay not to make any estimated tax payments for the first 3 quarters when another form (2210) tells me afterward that I should have made them and in an amount I could not have determined until after the year was over, and be assessed a penalty? That's my puzzlement. The last thing I want to do is reveal this contradiction in my tax return then have to explain it. So I don't file Form 2210.
OK, took a look at Form 1040ES a little bit. It seems like it tracks properly with Form 2210 Schedule AI, as I would have expected.

I don't see how it is possible for all of the following to be true:

1. You were keeping up with your tax obligation for the first three quarters ("So, your statement that I wasn't keeping up with my tax liabilities is not true.")
2. You have a large 4Q income of some kind which necessitates a larger 4Q estimated payment.
3. You either make the larger 4Q payment or file and pay your taxes by 2/1.
4. You file Form 2210 Schedule AI with your taxes to show the lumpy income.
5. You get assessed an underpayment penalty.

I think that somewhere in there is a disconnect. Either you are miscalculating on Form 1040ES for one of the periods, or you're not making the required 4Q estimated payment, or not filling out Form 2210 Schedule AI how or when you need to.

I will say that if you have lumpy income and lumpy payments and refuse to fill out and file Form 2210 Schedule AI, then you may owe a penalty and rightly so per the rules.

Also, if you decide to skip the 4Q estimated tax calculations and wait until 4/15 to file and pay, then you may also owe a penalty, and rightly so per the rules. But it doesn't sound like this is the case.

It sounds to me, on re-reading all that you wrote, that you're still not filling out Form 2210 Schedule AI correctly. If Form 1040ES says you didn't owe estimated taxes for the first three quarters, then Form 2210 Schedule AI should show the same thing, even after you receive the large 4Q income. Receiving the large 4Q income should only affect the last period on Schedule AI, not the first three.

A simplified or generic example might help clarify if you want to pursue further. Or maybe there are some lines on the Form 2210 Schedule AI that would more precisely point to the issue you're describing.
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Old 12-20-2020, 06:50 PM   #42
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Originally Posted by SecondCor521 View Post
OK, took a look at Form 1040ES a little bit. It seems like it tracks properly with Form 2210 Schedule AI, as I would have expected.

I don't see how it is possible for all of the following to be true:

1. You were keeping up with your tax obligation for the first three quarters ("So, your statement that I wasn't keeping up with my tax liabilities is not true.")
2. You have a large 4Q income of some kind which necessitates a larger 4Q estimated payment.
3. You either make the larger 4Q payment or file and pay your taxes by 2/1.
4. You file Form 2210 Schedule AI with your taxes to show the lumpy income.
5. You get assessed an underpayment penalty.

I think that somewhere in there is a disconnect. Either you are miscalculating on Form 1040ES for one of the periods, or you're not making the required 4Q estimated payment, or not filling out Form 2210 Schedule AI how or when you need to.

I will say that if you have lumpy income and lumpy payments and refuse to fill out and file Form 2210 Schedule AI, then you may owe a penalty and rightly so per the rules.

Also, if you decide to skip the 4Q estimated tax calculations and wait until 4/15 to file and pay, then you may also owe a penalty, and rightly so per the rules. But it doesn't sound like this is the case.

It sounds to me, on re-reading all that you wrote, that you're still not filling out Form 2210 Schedule AI correctly. If Form 1040ES says you didn't owe estimated taxes for the first three quarters, then Form 2210 Schedule AI should show the same thing, even after you receive the large 4Q income. Receiving the large 4Q income should only affect the last period on Schedule AI, not the first three.

A simplified or generic example might help clarify if you want to pursue further. Or maybe there are some lines on the Form 2210 Schedule AI that would more precisely point to the issue you're describing.
What if your filing status is MFJ. You pull $34K out of a tIRA (that has no basis) on Jan 1, and you expect that to be the entirety of your income for the current year. Though I did not look at it, I suspect in that case the 1040-ES worksheet will say you don't have to pay estimated taxes for the current year because your total tax liability will be less than $1K.

But, then you get an unexpected $30K distribution in Q4. You go ahead and pay all the tax due on January 15. If you fill out form 2210-AI, then I think that form (again without looking, so I could be wrong) will say you should have paid estimated taxes for Q1 that were equal to 1/4th of the tax owed on 4 x $34K and there would be a penalty since those taxes were essentially paid 9 months late.
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Old 12-20-2020, 10:02 PM   #43
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Cathy63's hypothetical is like my actual situation a few years ago. On my 1040ES worksheet, it says I don't have to make any estimated tax payments because my estimated tax liability will be under $1,000. Then, I get a large CG distribution in the 4th quarter, one which pushes my total tax liability over $1,000. I then make an appropriate estimated tax payment by Jan 15, keeping up with my tax liabilities for the year (only a 4th quarter payment was due).


But, as Cathy63 wrote, if I go back and complete Schedule AI using the actual income and tax data, it shows that I should have paid some estimated taxes for at least one prior quarter (and some penalties for non-payment). In my instance, the first and third quarters, despite having met the condition which allowed me to NOT have to make any estimated tax payments until the 4th quarter.


The only disconnect here is in the IRS's instructions between the 1040ES and 2210 forms. The former says it's okay to not make any estimated tax payments, and the latter says I get penalized for not making those estimated tax payments.
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Old 12-20-2020, 10:22 PM   #44
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^ Right, so I get what both of you are saying.

I'll probably look at those examples mostly to educate myself more about those forms, even though I think that underpayment penalties are out of scope for the volunteer tax preparation I do. I also would like the challenge of figuring out how to get it to work the way it should. Or learn that there is in fact a disconnect at the IRS rather than in my/scrabbler1's/cathy63's understanding, whichever the case may be.
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Old 12-21-2020, 01:23 PM   #45
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^ Right, so I get what both of you are saying.

I'll probably look at those examples mostly to educate myself more about those forms, even though I think that underpayment penalties are out of scope for the volunteer tax preparation I do. I also would like the challenge of figuring out how to get it to work the way it should. Or learn that there is in fact a disconnect at the IRS rather than in my/scrabbler1's/cathy63's understanding, whichever the case may be.
I had a few minutes this morning, so here are two tax returns created with TTax 2019 that illustrate the issue.

- The taxpayers are a married couple, both of whom turned 62 in 2019.
- They withdrew $34000 from an IRA in January 2019. The entire amount is taxable income.
At this point TTax showed that they owed ~$960 in tax and no penalties.

- They received $40000 from a mutual fund distribution in December 2019: $5000 as ODiv, $5000 as QDiv, $30000 as LTCG.
- They made one estimated tax payment of $1500 on January 15, 2020.
- They paid $3000 in income tax in 2018.

NoACA file: they did not take an ACA advance premium credit. They owe $13 in penalties.
WithACA file: they took a $12K ACA advance premium credit and had to pay back the entire amount. They owe $30 in penalties.

These are both legitimate penalties and the IRS can collect them if they want to, but it's probably not worth their effort for these small amounts.
Attached Files
File Type: pdf NoACA.pdf (337.9 KB, 2 views)
File Type: pdf WithACA.pdf (429.9 KB, 3 views)
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Old 12-21-2020, 02:59 PM   #46
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Thanks for saving me the trouble, @cathy63!

In the WithACA file, Form 2210, Schedule AI, line 18, columns (a) through (c), it seems that TurboTax 2019 does not agree with my interpretation / assertion earlier in the thread.

I think that John and Jane could have legitimately put in whatever ACA tax credit they would have been entitled to on line 18(a) through 18(c) per my footnote in post #35 in this thread. What do you think?

Also, it seems to me that TT2019 isn't filling out Schedule AI correctly. Shouldn't WithACA Form 2210 Schedule AI Line 1 column (b) be $34,000 instead of zero? I think it should be YTD income and thus include the $34,000 that the Does realized in January 2019. TT2019 appears to think it should be $0 because the Does did not have income between April 1st and May 31st. (I have a similar question/concern about Line 1 column (c).)

Again, I know just enough to be dangerous here. I'm still not ratting anyone out, and I agree with @cathy63 that the IRS probably won't be collecting these amounts of penalties. But I like to learn, and there are Tax Aide clients that I try to help as best I can where $30 in penalties would be a big deal to them. (Although I believe that underpayment penalties are out of scope for Tax Aide - they were last year anyway.)

...

As to the overall point about the unfairness of the penalties that @scrabbler1 raised, I wonder if the IRS's position is that people should be careful with APTC and estimated tax penalties, and that we should blame Congress and not them for the ACA cliff? (And maybe that there aren't very many taxpayers affected by this kind of scenario.)
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Old 12-21-2020, 03:42 PM   #47
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Originally Posted by SecondCor521 View Post
Thanks for saving me the trouble, @cathy63!

In the WithACA file, Form 2210, Schedule AI, line 18, columns (a) through (c), it seems that TurboTax 2019 does not agree with my interpretation / assertion earlier in the thread.

I think that John and Jane could have legitimately put in whatever ACA tax credit they would have been entitled to on line 18(a) through 18(c) per my footnote in post #35 in this thread. What do you think?

Also, it seems to me that TT2019 isn't filling out Schedule AI correctly. Shouldn't WithACA Form 2210 Schedule AI Line 1 column (b) be $34,000 instead of zero? I think it should be YTD income and thus include the $34,000 that the Does realized in January 2019. TT2019 appears to think it should be $0 because the Does did not have income between April 1st and May 31st. (I have a similar question/concern about Line 1 column (c).)

Again, I know just enough to be dangerous here. I'm still not ratting anyone out, and I agree with @cathy63 that the IRS probably won't be collecting these amounts of penalties. But I like to learn, and there are Tax Aide clients that I try to help as best I can where $30 in penalties would be a big deal to them. (Although I believe that underpayment penalties are out of scope for Tax Aide - they were last year anyway.)

...

As to the overall point about the unfairness of the penalties that @scrabbler1 raised, I wonder if the IRS's position is that people should be careful with APTC and estimated tax penalties, and that we should blame Congress and not them for the ACA cliff? (And maybe that there aren't very many taxpayers affected by this kind of scenario.)
SecondCor, you are correct about Line 1. This tripped me up when I used TurboTax to fill out 2210 last year. Each column value is YEAR TO DATE and not just the value for that quarter. It’s not a TT bug, the user needs to manually enter the right value. It’s also important to note the 4 quarters are not all equal durations.

I used a spreadsheet to accurately calculate all my Year to date values and then entered them manually.
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Old 12-21-2020, 04:23 PM   #48
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SecondCor, you are correct about Line 1. This tripped me up when I used TurboTax to fill out 2210 last year. Each column value is YEAR TO DATE and not just the value for that quarter. Itís not a TT bug, the user needs to manually enter the right value. Itís also important to note the 4 quarters are not all equal durations.

I used a spreadsheet to accurately calculate all my Year to date values and then entered them manually.
Yes this was my error. I did not carefully read the screen and didn't notice they were not asking me to divide the income into 4 parts, but to enter 4 YTD numbers. (It would have been nice if it alerted me to the fact that I was entering a smaller number where that might not make sense, but it is possible to have a loss in Q2 that makes your YTD AGI number smaller than Q1's.)

Credits work the same way, you allot them out yourself and enter the YTD amount for each column. TTax doesn't do it for you, even though by the time you've entered your income I think it should have enough info to be able to apportion the credits. There may be some case I'm not thinking of where it would be unable to do the calc correctly, so it just doesn't do it at all.

As to whether you can claim the PTC for some months even if you have to pay it back later, the answer for this example is no. You have to multiply your Q1 income number by 4, calculate the annual credit, then divide that by 4 and enter the number in column (a) on line 18. The $34K in Q1 annualizes to $136K, so $0 PTC for a family of 2. You could do it if your income was something like $10K for Q1 though, because annualizing that would still keep you in the range that allows a PTC, even if you ended up with a higher income later.

I agree this is out of scope for Tax Aide. Unfortunately my region is not participating in Tax Aide this year due to the Covid restrictions in the facilities we use.
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Old 12-21-2020, 05:33 PM   #49
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But how am I doing anything wrong by not filing the form if, at the start of the year, and in fact for the first 363 days of the year, I meet the conditions which would allow me to not file the form (2210)? Then, I receive a monster distribution in the year's final days which not only push me over the ACA cliff and have to give back the subsidy but raise my tax liability a LOT! When I go back to complete the form during tax season early the following year, it shows that I would owe a penalty. Screw that LOL! In some of those recent years, it was simply the large, unforeseen, late-December distribution which threw me out of any safe harbor provision described in both the 1040ES form and 2210 forms.

Surely I can't be the only tax filer who received a large, late-December distribution which blew us out of any safe harbor. We can't be penalized for that.
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.
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Old 12-21-2020, 05:37 PM   #50
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As to whether you can claim the PTC for some months even if you have to pay it back later, the answer for this example is no. You have to multiply your Q1 income number by 4, calculate the annual credit, then divide that by 4 and enter the number in column (a) on line 18. The $34K in Q1 annualizes to $136K, so $0 PTC for a family of 2. You could do it if your income was something like $10K for Q1 though, because annualizing that would still keep you in the range that allows a PTC, even if you ended up with a higher income later.
Well, yeah, I see your point. But by 18(c) or so, the annualized income figure might drop into PTC range. In that scenario, it sounds like you do agree they could calculate their PTC based on annualized YTD income and enter it in 18(c) and thus reduce the underpayment penalty somewhat.

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I agree this is out of scope for Tax Aide. Unfortunately my region is not participating in Tax Aide this year due to the Covid restrictions in the facilities we use.
Thanks. Bummer. My region is doing remote / limited contact options, which is not great but maybe better than nothing. It'll be harder on the taxpayers and the tax preparers for sure. It sounded like even if things started to get better during the tax preparation season, we still would not do in person service just because of the logistics of changing everything midstream.

That being said, this year will be pretty challenging tax preparation wise with all the CARES Act provisions. I'll be starting my diligent studies after the holidays and certify mid-January.
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Old 12-21-2020, 06:31 PM   #51
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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!
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Old 12-21-2020, 07:17 PM   #52
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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.
Quote:
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 youíre 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.
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Old 12-21-2020, 07:38 PM   #53
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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.
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