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Calculating the penalty on Form 2210

Highlighted
last updated ‎May 15, 2020 1:29 PM

If a person owes more than $1k, there is a penalty for under-withholding (exceptions apply, yada yada).

Basically, the penalty is interest, at 5% per year, figured daily calculated from 12/31 to 4/15. If you pay early, you get to subtract, based on number of days before 4/15, yada yada. 

The IRS will figure this penalty for you. Software should be able to figure it correctly. So could anyone who can do math.

The 2019 Form 2210 still shows the date 4/15, even though the due date is now 7/15.

So here's the question. Is the penalty still based on daily interest? In other words, let's say my client owes $1200, and doesn't plan to pay before 7/15. The penalty is figured as $13, but that would be if they paid by 4/15. Is the IRS waiving the next 3 months of penalty? Or has the software just not updated itself (and the forms also haven't updated themselves....)?

Curious minds want to know.

I know it's only another $10, but for some clients, that is a big difference. (They shouldn't have under-withheld, but that's another story.)

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8 Replies 8
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Level 10
last updated ‎May 15, 2020 1:29 PM

Check the box to let IRS figure the penalty.  If it's under $100, they won't.  Maybe they'll raise the allowance this year, because they will have enough correspondence to deal with. 

 

Highlighted
last updated ‎May 15, 2020 1:29 PM

I think you misunderstood me.

I'm not so concerned with what, exactly, the ultimate penalty will be. I'm just curious about whether or not they will be charging a penalty past 4/15/20.

I'm not asking a calculation question, I'm asking a procedure question.

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Level 14
last updated ‎May 15, 2020 1:29 PM

The underpayment penalty has always been computed through April 15 only. With our new July 15 due date, no penalties for late payment and late filing will be computed from April -July 15. Nor will there be interest.

 

P.S. Don't give anyone any ideas about computing the underpayment penalty through this year's due date of July 15. 😯


ex-AllStar
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Level 10
last updated ‎May 15, 2020 1:29 PM

@sjrcpa "Don't give anyone any ideas about computing the underpayment penalty through this year's due date of July 15"

It would have to be Congress getting the idea to change the law, which is easily available online. 

I.R.C. § 6654(b)(2) Period Of Underpayment — 

The period of the underpayment shall run from the due date for the installment to whichever of the following dates is the earlier—
I.R.C. § 6654(b)(2)(A)  
the 15th day of the 4th month following the close of the taxable year, or
I.R.C. § 6654(b)(2)(B)  
with respect to any portion of the underpayment, the date on which such portion is paid.
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Level 14
last updated ‎May 15, 2020 1:29 PM

@BobKamman"It would have to be Congress getting the idea to change the law" In general I would agree with you, but the way things are going in this crisis, CARES Act, SBA, etc. I'm not so sure anymore.


ex-AllStar
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Level 10
last updated ‎May 15, 2020 1:29 PM

@sjrcpa 

Oh, you mean how the rule of law is being ignored?  Well, yes, there's that.

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Level 12
last updated ‎May 15, 2020 1:29 PM

The penalty is calculating relative to the payment cycles. Not to Tax reporting, form due dates, etc. That's why we see this instruction:

"Penalty figured separately for each required payment.

The penalty is figured separately for each installment due date. Therefore, you may owe the penalty for an earlier due date even if you paid enough tax later to make up the underpayment. This is true even if you’re due a refund when you file your tax return. However, you may be able to reduce or eliminate the penalty by using the annualized income installment method."

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"Level Up" is a gaming function, not a real life function.
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Level 10
last updated ‎May 15, 2020 1:29 PM

I'm not answering an uninformed amateur question, I'm suggesting an informed professional procedure.  

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