Obamacare Tax Credit Question

[scrabbler1]

Telling the IRS that they can't penalize you is not likely to go over well, because they definitely can. You can always ask for a waiver though. You'd likely get one if you could truthfully point out that this fund that had a large December distribution had never paid out a similar amount before and you wouldn't have owed a penalty but for that. If it happens more than once it's pretty hard to claim it's unforeseen, but you can also take your chances and wait until they notice that a penalty is due. Sometimes they don't.

So I can be penalized for not correctly predicting by April 15th, when the first quarter estimated taxes are due, that there will be a monster cap gains distribution in late December, 8 months later, sending me over the ACA cliff and out of any safe harbor? Even if it happened the year before, it would still be very unforeseen.

 

[PaunchyPirate]

ACA subsidies are clearly mentioned on Form 2210. In the instructions for Part I, Line 3, it reads as follows (emphasis mine):

​

"Refundable credits, including the premium tax credit (see instructions)"

And in the instruction booklet itself, the premium tax credit (Form 8962) is shown among a list of applicable credits.

If I had to defense not paying any estimated taxes, I would include what I completed for Form 2210 at the start of the year, stopping at Line 4 because I had met that line's condition for not filing Form 2210. Form 2210 has to be started at the beginning of the year in order to determine one's estimated tax bill for the first quarter. You can't complete it for the first time at the end of the year then go back in time to make an estimated tax payment for the first quarter which at the time it appeared none had to be made per that same form's instructions.

My bad for not recalling the ACA being part of the 2210.

But I would argue that the 2200 does not have to be (and wasn’t probably intended to be) involved in determining your estimated taxes due at the beginning of the year. I never touch it until tax filing time.

If you are making estimated tax payments, and you make 4 equal payments that meet your total tax liability, then you don’t need 2210 at all. In January, I figure an approximate yearly taxable income, calculate the tax due and divide by 4. If my income turns bumpy as the year goes on, I may adjust the estimated payment. I still haven’t looked at 2210. TurboTax is smart enough to tell me if I’ve crossed a threshold that triggers a penalty and then offers me to go the 2210 route if I want to try and avoid the penalty for a legit reason. That’s when I populate the numbers for the form for the first time.

 

[cathy63]

So I can be penalized for not correctly predicting by April 15th, when the first quarter estimated taxes are due, that there will be a monster cap gains distribution in late December, 8 months later, sending me over the ACA cliff and out of any safe harbor? Even if it happened the year before, it would still be very unforeseen.

I would never say that the tax law, (or the IRS' interpretation of the tax law), is always fair and reasonable.

 

[scrabbler1]

My bad for not recalling the ACA being part of the 2210.

But I would argue that the 2200 does not have to be (and wasn’t probably intended to be) involved in determining your estimated taxes due at the beginning of the year. I never touch it until tax filing time.

If you are making estimated tax payments, and you make 4 equal payments that meet your total tax liability, then you don’t need 2210 at all. In January, I figure an approximate yearly taxable income, calculate the tax due and divide by 4. If my income turns bumpy as the year goes on, I may adjust the estimated payment. I still haven’t looked at 2210. TurboTax is smart enough to tell me if I’ve crossed a threshold that triggers a penalty and then offers me to go the 2210 route if I want to try and avoid the penalty for a legit reason. That’s when I populate the numbers for the form for the first time.

I start each year by looking at Form 1040ES, the one for estimated taxes which comes out very early in the year because of its early filing due dates. It asks many of the same questions as found in Form 2210, especially regarding the safe harbor provisions. Filling out that form's worksheet, which is not filed with the form, results in my being in a safe harbor at the start of the year thanks to the expected ACA subsidy and/or absence of any anticipated large year-end distribution. It was when I later checked out Form 2210 when I found out how unfair it was to expect me to be a seer or somehow go back in time to make an estimated tax payment even though I reasonably thought I was going to be in a safe harbor at that time.

Thankfully, neither 1040ES nor 2210 will be an issue for me again any time soon. At the end of last year, I dumped the stock fund which generated all those large, year-end distributions. I have been safely back on the ACA subsidy train this year and my MAGI will be very, very close to what I predicted it would be back in February when I had to tell my state's exchange what it would be. The subsidy will wipe out what little in taxes I will owe. So, no estimated taxes (for federal, not state), no 1040ES, no 2210 to worry about.

 

[RunningBum]

Safe harbor is based on last year's tax payment, and doesn't change because of some event that happens this year.

 

[scrabbler1]

Safe harbor is based on last year's tax payment, and doesn't change because of some event that happens this year.

Sorry, but there is one safe harbor provision which is not based on the prior year's taxes or tax payments. On Form 1040ES (Line 14b), if the difference between your upcoming year's estimated tax (i.e. income) and estimated taxes withheld is less than $1,000, then you do not have to make any estimated tax payments. This is the safe harbor provision which is the most relevant to me and my situation.

 

[SecondCor521]

So I can be penalized for not correctly predicting by April 15th, when the first quarter estimated taxes are due, that there will be a monster cap gains distribution in late December, 8 months later, sending me over the ACA cliff and out of any safe harbor? Even if it happened the year before, it would still be very unforeseen.

I don't think that's right.

If a person gets a big distribution in December (or does a large Roth conversion, or large capital gain), then they can (a) pay the estimated taxes a few weeks later on January 15th and (b) file Form 2210 to show the lumpiness of their income. Doing those two things will completely prevent a penalty, as far as I understand things, and this holds true even if it happens year after year.

Generally speaking, if you pay enough quarterly in taxes to cover your YTD liability, you won't be penalized. There is no guessing/predicting/foreseeing required, although of course a lot of people choose to do withholding throughout the year in order to budget more easily.

 

[SecondCor521]

Sorry, but there is one safe harbor provision which is not based on the prior year's taxes or tax payments. On Form 1040ES (Line 14b), if the difference between your upcoming year's estimated tax (i.e. income) and estimated taxes withheld is less than $1,000, then you do not have to make any estimated tax payments. This is the safe harbor provision which is the most relevant to me and my situation.

There are effectively four different safe harbor provisions, and meeting any of them is enough to avoid underpayment penalties. Two have already been mentioned. The other two are meeting 90% of your current year tax liability, and not having a tax liability in the previous year.

 

[scrabbler1]

I don't think that's right.

If a person gets a big distribution in December (or does a large Roth conversion, or large capital gain), then they can (a) pay the estimated taxes a few weeks later on January 15th and (b) file Form 2210 to show the lumpiness of their income. Doing those two things will completely prevent a penalty, as far as I understand things, and this holds true even if it happens year after year.

Generally speaking, if you pay enough quarterly in taxes to cover your YTD liability, you won't be penalized. There is no guessing/predicting/foreseeing required, although of course a lot of people choose to do withholding throughout the year in order to budget more easily.

But that's the problem. I pay no estimated taxes throughout the year because I expect to be in a safe harbor for the year (the $1,000 one). I have no taxes withheld because all of my income is investment income from ordinary taxable account which offer no chance to withhold any of it anyway.

If I get a large cap gain distribution at the end of the year, I do pay 4th quarter estimated taxes. But I don't dare file Form 2210 with my return because it will show I "should" have paid some estimated taxes for at least one of the earlier quarters. The large distribution (and subsequent elimination of any ACA subsidy) kicked me out of the safe harbor. I would then have to explain with my return why I should not have to pay any penalties ("I expected to be in a safe harbor the whole year and was in it for 11 months; I hit the STOP on Line 3 and in the 1040ES worksheet, etc.") and hope the IRS understands my explanation. Or, I don't file Form 2210 and keep the same explanation in my back pocket in case the IRS contacts me later (which they have never, ever done). I choose the latter.

 

[SecondCor521]

But that's the problem. I pay no estimated taxes throughout the year because I expect to be in a safe harbor for the year (the $1,000 one). I have no taxes withheld because all of my income is investment income from ordinary taxable account which offer no chance to withhold any of it anyway.

If I get a large cap gain distribution at the end of the year, I do pay 4th quarter estimated taxes. But I don't dare file Form 2210 with my return because it will show I "should" have paid some estimated taxes for at least one of the earlier quarters. The large distribution (and subsequent elimination of any ACA subsidy) kicked me out of the safe harbor. I would then have to explain with my return why I should not have to pay any penalties ("I expected to be in a safe harbor the whole year and was in it for 11 months; I hit the STOP on Line 3 and in the 1040ES worksheet, etc.") and hope the IRS understands my explanation. Or, I don't file Form 2210 and keep the same explanation in my back pocket in case the IRS contacts me later (which they have never, ever done). I choose the latter.

Emphasis added by me.

The way I read the instructions for Form 2210 Schedule AI Line 18, the bolded part above may not be accurate. For each of the four periods, the instructions say to figure the credits as though your income through the end of the period was annualized and then base the credits on that annualized income. The instructions reference the Earned Income Credit, but it seems that it would equally apply to the ACA Premium Tax Credit. [1]

So for example, if you earned not much in the first period, then you'd be entitled to list a portion of the ACA PTC during that period and thus show that you didn't owe any underpayment penalty. Ditto for the second and third period - you'd show low income, the PTC, and not much in withholding or estimated tax payments, all balancing out to show no penalty.

For the fourth period, when you effectively lost your PTC by realizing a bunch of income and going over the cliff, you'd show that on Schedule AI as (a) higher income, (b) loss of the PTC, and (c) an estimated tax payment for that period, with, in my scenario, those three things balancing out again to show no penalty.

What it seems that you believe is that you'd not be able to show the PTC in all four periods because you ended up losing it at the end of the year. I seem to think that you'd be able to list it for the first three periods because during that time you would qualify to get it, then not list it for the last period because you did in fact lose it then. But making up for it by making that 4th quarter estimated tax payment.

[1] "When figuring your credits, annualize any item of income or deduction used to figure each credit. For example, if your earned income (and AGI) for the first period (column (a)) is $8,000 and you qualify for the earned income credit (EIC), use your annualized earned income ($32,000) to figure your EIC for column (a)." https://www.irs.gov/instructions/i2210#idm140641542934448

 

[scrabbler1]

Emphasis added by me.

The way I read the instructions for Form 2210 Schedule AI Line 18, the bolded part above may not be accurate. For each of the four periods, the instructions say to figure the credits as though your income through the end of the period was annualized and then base the credits on that annualized income. The instructions reference the Earned Income Credit, but it seems that it would equally apply to the ACA Premium Tax Credit. [1]

So for example, if you earned not much in the first period, then you'd be entitled to list a portion of the ACA PTC during that period and thus show that you didn't owe any underpayment penalty. Ditto for the second and third period - you'd show low income, the PTC, and not much in withholding or estimated tax payments, all balancing out to show no penalty.

For the fourth period, when you effectively lost your PTC by realizing a bunch of income and going over the cliff, you'd show that on Schedule AI as (a) higher income, (b) loss of the PTC, and (c) an estimated tax payment for that period, with, in my scenario, those three things balancing out again to show no penalty.

What it seems that you believe is that you'd not be able to show the PTC in all four periods because you ended up losing it at the end of the year. I seem to think that you'd be able to list it for the first three periods because during that time you would qualify to get it, then not list it for the last period because you did in fact lose it then. But making up for it by making that 4th quarter estimated tax payment.

[1] "When figuring your credits, annualize any item of income or deduction used to figure each credit. For example, if your earned income (and AGI) for the first period (column (a)) is $8,000 and you qualify for the earned income credit (EIC), use your annualized earned income ($32,000) to figure your EIC for column (a)." https://www.irs.gov/instructions/i2210#idm140641542934448

Interesting take on Line 18. However, this is what it says in the first paragraph of that line's explanation (emphasis mine):

"For each column, enter the credits you are entitled to because of events that occurred during the months shown in the column headings. These are the credits you used to arrive at the amounts on lines 1 and 3 of Part I, Required Annual Payment."

When I completed those 2 lines on the opening part of Form 2210 (at the end of the year after I went over the ACA cliff, not at the beginning of the year when I still felt I'd have remained eligible for the subsidy), Line 1 excluded the ACA subsidy and Line 3 was zero. Therefore, I entered zeroes in all 4 columns of Schedule AI, Line 18.

Anyway, your take of the instructions wouldn't matter because my ACA credit wasn't that big, so any estimated taxes due for the first 3 quarters would drop slightly but not disappear.

 

[SecondCor521]

^ Yeah, I read the part you bolded to be directing you as to which credits - credits such as the PTC, EIC, etc. - to include in line 18. So in your case, the IRS is saying, "Scrabbler1, for line 18 you need to include the ACA PTC on line 18"

The part I quoted in my footnote, I believe, directs you to take those credits and calculate them in an annualized way. After all, the entire point of Schedule AI is to annualize everything for each of those four periods. So in your case, the IRS is saying, "So that ACA credit that we were talking about, you need to annualize it for these four boxes on line 18"

But IANAL and reasonable minds can differ and still be friends.

If you follow my approach and still owed estimated taxes according to Schedule AI, then either you were withholding to cover that, or you actually do owe a penalty. I'm not going to rat anyone out to the IRS and I don't care. But if that's the case I don't understand your puzzlement that began this conversation thread. The penalty would be because you didn't keep up with your tax liabilities, not because you had large income at the end of the year and were not clairvoyant.

My interpretation does not require clairvoyance, and it's also in tune with the language and overall structure of Form 2210 Schedule AI. I may think the IRS's rules are arcane and insanely complicated and detailed, but overall I generally find them to be rational and as reasonable as they can make them given the tax laws.

 

[scrabbler1]

^ Yeah, I read the part you bolded to be directing you as to which credits - credits such as the PTC, EIC, etc. - to include in line 18. So in your case, the IRS is saying, "Scrabbler1, for line 18 you need to include the ACA PTC on line 18"

The part I quoted in my footnote, I believe, directs you to take those credits and calculate them in an annualized way. After all, the entire point of Schedule AI is to annualize everything for each of those four periods. So in your case, the IRS is saying, "So that ACA credit that we were talking about, you need to annualize it for these four boxes on line 18"

But IANAL and reasonable minds can differ and still be friends.

If you follow my approach and still owed estimated taxes according to Schedule AI, then either you were withholding to cover that, or you actually do owe a penalty. I'm not going to rat anyone out to the IRS and I don't care. But if that's the case I don't understand your puzzlement that began this conversation thread. The penalty would be because you didn't keep up with your tax liabilities, not because you had large income at the end of the year and were not clairvoyant.

My interpretation does not require clairvoyance, and it's also in tune with the language and overall structure of Form 2210 Schedule AI. I may think the IRS's rules are arcane and insanely complicated and detailed, but overall I generally find them to be rational and as reasonable as they can make them given the tax laws.

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.

 

[sengsational]

Sounds like a disconnect in the logic, and it's probably the least of the IRS's problems. The $1,000 safe harbor that you are relying on was probably intended as an after the fact "geeze, it's only a tiny sum, let's call it even" rule. But you, allowably, temporally shift it, and it breaks the system. Interesting, but probably not on the IRS's top 100 list.

 

[SecondCor521]

^ Honestly, I only know enough to be dangerous in this area. I'm more or less banking on the IRS having approximately reasonable rules, because when they don't enough taxpayers complain to the various taxpayer advocates or generate media articles. The IRS doesn't want or need displeased and annoyed taxpayers or bad press.

I'm not a lackey for the IRS, but my experience indicates that most of the time in situations like this it's the taxpayer missing something somewhere - which is not unexpected when there are about 1,000 forms and 100,000 pages of instructions, but usually the disconnect is resolved somewhere in that pile of stuff. I'm more motivated by trying to help reduce your frustration than defend the IRS.

I might take a look at Form 1040ES in a bit more detail and see if I can find the disconnect based on your approximate explanation of your tax situation. Would you be able/willing to post made up simplified made-up numbers which demonstrate the problem? PM would be fine too.

 

[SecondCor521]

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.

 

[cathy63]

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.

 

[scrabbler1]

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.

 

[SecondCor521]

^ 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.

 

[cathy63]

^ 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.

 

[SecondCor521]

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.)

 

[PaunchyPirate]

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.

 

[cathy63]

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.

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.

 

[pb4uski]

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.

 

[SecondCor521]

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.

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.