Estimated tax penalty exceptions [ACA premium underpayment penalty]

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Topic Author
celentano
Posts: 65
Joined: Wed Jun 13, 2018 2:55 pm

Estimated tax penalty exceptions [ACA premium underpayment penalty]

Post by celentano » Sat Jan 12, 2019 3:55 pm

I just realized that IRS hit me with a nice penalty for not paying enough estimated taxes during 2017. I didn't think I had to pay the penalty, because on 27th of December I received a large Capital Gains Distribution from a mutual fund. This additional income disqualified me from keeping Obamacare Premium subsidies and I had pay all of it back ($13,000). This was the amount due (approximately) when I filed my taxes in April 2018. There was no way for me to predict this outcome during the year. Is IRS correct to charge me interest penalty on this amount? The same situation is happening this year, except the amount I will owe is much higher due to higher premiums credits I have to pay back ($18,000). Thanks

talzara
Posts: 677
Joined: Thu Feb 12, 2009 7:40 pm

Re: Estimated tax penalty exceptions

Post by talzara » Sat Jan 12, 2019 4:26 pm

celentano wrote:
Sat Jan 12, 2019 3:55 pm
I just realized that IRS hit me with a nice penalty for not paying enough estimated taxes during 2017. I didn't think I had to pay the penalty, because on 27th of December I received a large Capital Gains Distribution from a mutual fund. This additional income disqualified me from keeping Obamacare Premium subsidies and I had pay all of it back ($13,000). This was the amount due (approximately) when I filed my taxes in April 2018. There was no way for me to predict this outcome during the year. Is IRS correct to charge me interest penalty on this amount? The same situation is happening this year, except the amount I will owe is much higher due to higher premiums credits I have to pay back ($18,000). Thanks
You must make estimated payments by January 15 for income received in the 4th quarter. If you don't, the IRS can charge you three months of interest.

They probably charged you twice as much interest on the capital gains taxes, because they assumed that the income was received equally over the whole year. You can get the overcharge refunded by filing an amended return with form 2210. Make the annualized income election and use the worksheet to calculate the interest for three months.

It's harder to avoid the penalty on excess premium tax credit. The instructions for form 2210 say:
If you received premium assistance through advance payments of the PTC in 2017, and the amount advanced exceeded the amount of PTC you can take, you could be subject to a penalty for underpaying your estimated tax.

https://www.irs.gov/pub/irs-pdf/i2210.pdf
You can request a waiver for 2017 on form 2210. You will have a harder time getting a waiver for 2018 because you were already assessed the penalty for 2017.

It's only January 12, so you still have three days to pay estimated taxes for the 4th quarter of 2018. Even if you can't get the waiver, you can still avoid three months of interest.

Topic Author
celentano
Posts: 65
Joined: Wed Jun 13, 2018 2:55 pm

Re: Estimated tax penalty exceptions

Post by celentano » Sat Jan 12, 2019 5:56 pm

I will forget about the 2017 (they need the money. However, I would like to avoid the penalty for tax year 2018 (if any). The one event that brought me over the PTC threshold was a mandatory stock gain due to a merger in November. I had sent a large check to IRS in December. The way it looks now I may get a small refund in April (if there is no penalty). Do I need to do anything else?

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FiveK
Posts: 5987
Joined: Sun Mar 16, 2014 2:43 pm

Re: Estimated tax penalty exceptions

Post by FiveK » Sat Jan 12, 2019 7:04 pm

celentano wrote:
Sat Jan 12, 2019 5:56 pm
I will forget about the 2017 (they need the money. However, I would like to avoid the penalty for tax year 2018 (if any). The one event that brought me over the PTC threshold was a mandatory stock gain due to a merger in November. I had sent a large check to IRS in December. The way it looks now I may get a small refund in April (if there is no penalty). Do I need to do anything else?
You may need to submit Schedule AI on Form 2210. That would match your 4th quarter payment with the 4th quarter income.

Otherwise the IRS will assume the income was spread over the year, and hit you for not withholding enough to meet each quarter's (assumed) tax liability.

michaeljc70
Posts: 4129
Joined: Thu Oct 15, 2015 3:53 pm

Re: Estimated tax penalty exceptions

Post by michaeljc70 » Sat Jan 12, 2019 9:22 pm

As indicated above, doing the AI schedule on form 2210 should help. It shouldn't be a surprise if you are expecting it again this year. I'd suggest not taking the PTC if you aren't sure you can qualify. You can get it when you file your taxes if you do qualify. The other thing you can do, and this is if you know far enough in advance and have enough income from work, is jack up your withholding toward the end of the year. If you withhold enough to meet the safe harbors, you won't have to make an estimated payment or pay a penalty/interest or break out by quarter using the AI schedule.

MarkNYC
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Joined: Mon May 05, 2008 7:58 pm

Re: Estimated tax penalty exceptions

Post by MarkNYC » Sat Jan 12, 2019 10:31 pm

talzara wrote:
Sat Jan 12, 2019 4:26 pm

You can get the overcharge refunded by filing an amended return with form 2210. Make the annualized income election and use the worksheet to calculate the interest for three months.
You should not file an amended tax return for the sole purpose of requesting a refund or abatement of an underpayment penalty. Instead, respond to the IRS penalty assessment notice with a letter of explanation and a request for abatement, accompanied by a properly completed Form 2210.

trueblueky
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Re: Estimated tax penalty exceptions

Post by trueblueky » Sat Jan 12, 2019 10:36 pm

michaeljc70 wrote:
Sat Jan 12, 2019 9:22 pm
I'd suggest not taking the PTC if you aren't sure you can qualify. You can get it when you file your taxes if you do qualify.
^^^
This.

scrabbler1
Posts: 2273
Joined: Fri Nov 20, 2009 2:39 pm

Re: Estimated tax penalty exceptions

Post by scrabbler1 » Sun Jan 13, 2019 11:48 am

celentano wrote:
Sat Jan 12, 2019 3:55 pm
I just realized that IRS hit me with a nice penalty for not paying enough estimated taxes during 2017. I didn't think I had to pay the penalty, because on 27th of December I received a large Capital Gains Distribution from a mutual fund. This additional income disqualified me from keeping Obamacare Premium subsidies and I had pay all of it back ($13,000). This was the amount due (approximately) when I filed my taxes in April 2018. There was no way for me to predict this outcome during the year. Is IRS correct to charge me interest penalty on this amount? The same situation is happening this year, except the amount I will owe is much higher due to higher premiums credits I have to pay back ($18,000). Thanks
I haven't been hit with any underpayment penalty or interest, but I have been in a similar situation as you with regard to a large cap gains distribution at the end of the year erasing the ACA premium subsidy I got during the year. As I mentioned in a recent thread, Form 2210 doesn't help me make my case because until the day in late December I got the large CG distribution, I would never had to FILE Form 2210. My total federal tax liability, after deducting the ACA subsidy, would have been less than $1,000. That would also have resulted in my not having to make any estimated tax payments throughout the year, either.

It seems very unfair to have been in a safe harbor all year long only to be thrown from it a few days before the end of the year and be subject to penalties for not having paid estimated payments for earlier quarters. Is there any way you can include an explanation with what Form 2210 would have looked like had that large CG distribution had not occurred a few days before the end of the year?

michaeljc70
Posts: 4129
Joined: Thu Oct 15, 2015 3:53 pm

Re: Estimated tax penalty exceptions

Post by michaeljc70 » Sun Jan 13, 2019 11:55 am

scrabbler1 wrote:
Sun Jan 13, 2019 11:48 am
celentano wrote:
Sat Jan 12, 2019 3:55 pm
I just realized that IRS hit me with a nice penalty for not paying enough estimated taxes during 2017. I didn't think I had to pay the penalty, because on 27th of December I received a large Capital Gains Distribution from a mutual fund. This additional income disqualified me from keeping Obamacare Premium subsidies and I had pay all of it back ($13,000). This was the amount due (approximately) when I filed my taxes in April 2018. There was no way for me to predict this outcome during the year. Is IRS correct to charge me interest penalty on this amount? The same situation is happening this year, except the amount I will owe is much higher due to higher premiums credits I have to pay back ($18,000). Thanks
I haven't been hit with any underpayment penalty or interest, but I have been in a similar situation as you with regard to a large cap gains distribution at the end of the year erasing the ACA premium subsidy I got during the year. As I mentioned in a recent thread, Form 2210 doesn't help me make my case because until the day in late December I got the large CG distribution, I would never had to FILE Form 2210. My total federal tax liability, after deducting the ACA subsidy, would have been less than $1,000. That would also have resulted in my not having to make any estimated tax payments throughout the year, either.

It seems very unfair to have been in a safe harbor all year long only to be thrown from it a few days before the end of the year and be subject to penalties for not having paid estimated payments for earlier quarters. Is there any way you can include an explanation with what Form 2210 would have looked like had that large CG distribution had not occurred a few days before the end of the year?
You miscalculated your income when you applied for the ACA plan. I'm not sure how that is unfair or the IRS's fault.

scrabbler1
Posts: 2273
Joined: Fri Nov 20, 2009 2:39 pm

Re: Estimated tax penalty exceptions

Post by scrabbler1 » Sun Jan 13, 2019 12:06 pm

michaeljc70 wrote:
Sun Jan 13, 2019 11:55 am
scrabbler1 wrote:
Sun Jan 13, 2019 11:48 am
celentano wrote:
Sat Jan 12, 2019 3:55 pm
I just realized that IRS hit me with a nice penalty for not paying enough estimated taxes during 2017. I didn't think I had to pay the penalty, because on 27th of December I received a large Capital Gains Distribution from a mutual fund. This additional income disqualified me from keeping Obamacare Premium subsidies and I had pay all of it back ($13,000). This was the amount due (approximately) when I filed my taxes in April 2018. There was no way for me to predict this outcome during the year. Is IRS correct to charge me interest penalty on this amount? The same situation is happening this year, except the amount I will owe is much higher due to higher premiums credits I have to pay back ($18,000). Thanks
I haven't been hit with any underpayment penalty or interest, but I have been in a similar situation as you with regard to a large cap gains distribution at the end of the year erasing the ACA premium subsidy I got during the year. As I mentioned in a recent thread, Form 2210 doesn't help me make my case because until the day in late December I got the large CG distribution, I would never had to FILE Form 2210. My total federal tax liability, after deducting the ACA subsidy, would have been less than $1,000. That would also have resulted in my not having to make any estimated tax payments throughout the year, either.

It seems very unfair to have been in a safe harbor all year long only to be thrown from it a few days before the end of the year and be subject to penalties for not having paid estimated payments for earlier quarters. Is there any way you can include an explanation with what Form 2210 would have looked like had that large CG distribution had not occurred a few days before the end of the year?
You miscalculated your income when you applied for the ACA plan. I'm not sure how that is unfair or the IRS's fault.
That's bull. I allowed for a cap gains distribution when I applied for the ACA subsidy. Until those last few days, I had actually underestimated the ACA subsidy I was set to receive. The humongous CG distribution, which I could not have foreseen, not only exceeded my estimate, but it wiped out what I had already received in ACA subsidy. In the worksheet for Form 1040-ES, I was set to be in a safe harbor without making any estimated tax payments. Are you saying I should make an estimated tax payment for each of the first 3 quarters based on a guess of 4th quarter income I don't know if I will receive and haven't even gotten yet?

I did make a 4th quarter estimated tax payment to cover much of the added taxes due. I am fine with that.

talzara
Posts: 677
Joined: Thu Feb 12, 2009 7:40 pm

Re: Estimated tax penalty exceptions

Post by talzara » Sun Jan 13, 2019 12:11 pm

celentano wrote:
Sat Jan 12, 2019 5:56 pm
I will forget about the 2017 (they need the money. However, I would like to avoid the penalty for tax year 2018 (if any). The one event that brought me over the PTC threshold was a mandatory stock gain due to a merger in November. I had sent a large check to IRS in December. The way it looks now I may get a small refund in April (if there is no penalty). Do I need to do anything else?
Since you already paid estimated taxes for the 4th quarter of 2018, you don't have to do anything else until you file your tax return.

Using the annualized method for form 2210, the advance PTC repayment should come out as zero for the first three quarters. All of the PTC repayment will be due in the 4th quarter, but you won't owe any interest since you already paid.

You must've paid over $300 in penalties for 2017. Are you sure you don't want that money back? You can get half the money back using the annualized method, or you can ask that the full amount be waived since it's your first time.

michaeljc70
Posts: 4129
Joined: Thu Oct 15, 2015 3:53 pm

Re: Estimated tax penalty exceptions

Post by michaeljc70 » Sun Jan 13, 2019 12:16 pm

scrabbler1 wrote:
Sun Jan 13, 2019 12:06 pm
michaeljc70 wrote:
Sun Jan 13, 2019 11:55 am
scrabbler1 wrote:
Sun Jan 13, 2019 11:48 am
celentano wrote:
Sat Jan 12, 2019 3:55 pm
I just realized that IRS hit me with a nice penalty for not paying enough estimated taxes during 2017. I didn't think I had to pay the penalty, because on 27th of December I received a large Capital Gains Distribution from a mutual fund. This additional income disqualified me from keeping Obamacare Premium subsidies and I had pay all of it back ($13,000). This was the amount due (approximately) when I filed my taxes in April 2018. There was no way for me to predict this outcome during the year. Is IRS correct to charge me interest penalty on this amount? The same situation is happening this year, except the amount I will owe is much higher due to higher premiums credits I have to pay back ($18,000). Thanks
I haven't been hit with any underpayment penalty or interest, but I have been in a similar situation as you with regard to a large cap gains distribution at the end of the year erasing the ACA premium subsidy I got during the year. As I mentioned in a recent thread, Form 2210 doesn't help me make my case because until the day in late December I got the large CG distribution, I would never had to FILE Form 2210. My total federal tax liability, after deducting the ACA subsidy, would have been less than $1,000. That would also have resulted in my not having to make any estimated tax payments throughout the year, either.

It seems very unfair to have been in a safe harbor all year long only to be thrown from it a few days before the end of the year and be subject to penalties for not having paid estimated payments for earlier quarters. Is there any way you can include an explanation with what Form 2210 would have looked like had that large CG distribution had not occurred a few days before the end of the year?
You miscalculated your income when you applied for the ACA plan. I'm not sure how that is unfair or the IRS's fault.
That's bull. I allowed for a cap gains distribution when I applied for the ACA subsidy. Until those last few days, I had actually underestimated the ACA subsidy I was set to receive. The humongous CG distribution, which I could not have foreseen, not only exceeded my estimate, but it wiped out what I had already received in ACA subsidy. In the worksheet for Form 1040-ES, I was set to be in a safe harbor without making any estimated tax payments. Are you saying I should make an estimated tax payment for each of the first 3 quarters based on a guess of 4th quarter income I don't know if I will receive and haven't even gotten yet?

I did make a 4th quarter estimated tax payment to cover much of the added taxes due. I am fine with that.
What caused the huge CG distribution? Maybe you need to move things around if possible to keep that in a retirement account or invest in things with more predictable CG distributions. Again, I'm not sure what you are expecting. Forgiveness because the CG was larger than you thought?

scrabbler1
Posts: 2273
Joined: Fri Nov 20, 2009 2:39 pm

Re: Estimated tax penalty exceptions

Post by scrabbler1 » Sun Jan 13, 2019 12:29 pm

michaeljc70 wrote:
Sun Jan 13, 2019 12:16 pm
scrabbler1 wrote:
Sun Jan 13, 2019 12:06 pm
michaeljc70 wrote:
Sun Jan 13, 2019 11:55 am
scrabbler1 wrote:
Sun Jan 13, 2019 11:48 am
celentano wrote:
Sat Jan 12, 2019 3:55 pm
I just realized that IRS hit me with a nice penalty for not paying enough estimated taxes during 2017. I didn't think I had to pay the penalty, because on 27th of December I received a large Capital Gains Distribution from a mutual fund. This additional income disqualified me from keeping Obamacare Premium subsidies and I had pay all of it back ($13,000). This was the amount due (approximately) when I filed my taxes in April 2018. There was no way for me to predict this outcome during the year. Is IRS correct to charge me interest penalty on this amount? The same situation is happening this year, except the amount I will owe is much higher due to higher premiums credits I have to pay back ($18,000). Thanks
I haven't been hit with any underpayment penalty or interest, but I have been in a similar situation as you with regard to a large cap gains distribution at the end of the year erasing the ACA premium subsidy I got during the year. As I mentioned in a recent thread, Form 2210 doesn't help me make my case because until the day in late December I got the large CG distribution, I would never had to FILE Form 2210. My total federal tax liability, after deducting the ACA subsidy, would have been less than $1,000. That would also have resulted in my not having to make any estimated tax payments throughout the year, either.

It seems very unfair to have been in a safe harbor all year long only to be thrown from it a few days before the end of the year and be subject to penalties for not having paid estimated payments for earlier quarters. Is there any way you can include an explanation with what Form 2210 would have looked like had that large CG distribution had not occurred a few days before the end of the year?
You miscalculated your income when you applied for the ACA plan. I'm not sure how that is unfair or the IRS's fault.
That's bull. I allowed for a cap gains distribution when I applied for the ACA subsidy. Until those last few days, I had actually underestimated the ACA subsidy I was set to receive. The humongous CG distribution, which I could not have foreseen, not only exceeded my estimate, but it wiped out what I had already received in ACA subsidy. In the worksheet for Form 1040-ES, I was set to be in a safe harbor without making any estimated tax payments. Are you saying I should make an estimated tax payment for each of the first 3 quarters based on a guess of 4th quarter income I don't know if I will receive and haven't even gotten yet?

I did make a 4th quarter estimated tax payment to cover much of the added taxes due. I am fine with that.
What caused the huge CG distribution? Maybe you need to move things around if possible to keep that in a retirement account or invest in things with more predictable CG distributions. Again, I'm not sure what you are expecting. Forgiveness because the CG was larger than you thought?
I don't have any inside knowledge about how the fund's manager is going to behave when it comes to CG distributions at the end of the year. The stocks in the fund went up, what can I say? I would actually pay more in taxes if I liquidated the fund because my cost basis position is pretty low. I am an early retiree so I can't add anything to my rollover tIRA, nor would I want to.

Just as the OP feels he has been treated unfairly due to penalties, I would feel the same way if I had been treated the same way (which hasn't happened, perhaps I am flying under the IRS radar?). We don't oppose paying taxes on the added income, just penalties going back to earlier quarters which became triggered by the subsequent distribution.

talzara
Posts: 677
Joined: Thu Feb 12, 2009 7:40 pm

Re: Estimated tax penalty exceptions

Post by talzara » Sun Jan 13, 2019 12:37 pm

scrabbler1 wrote:
Sun Jan 13, 2019 11:48 am
I haven't been hit with any underpayment penalty or interest, but I have been in a similar situation as you with regard to a large cap gains distribution at the end of the year erasing the ACA premium subsidy I got during the year. As I mentioned in a recent thread, Form 2210 doesn't help me make my case because until the day in late December I got the large CG distribution, I would never had to FILE Form 2210. My total federal tax liability, after deducting the ACA subsidy, would have been less than $1,000. That would also have resulted in my not having to make any estimated tax payments throughout the year, either.
As I wrote to the OP, you can ask for a waiver of the penalty. The OP doesn't want a waiver for 2017, but maybe you do.
scrabbler1 wrote:
Sun Jan 13, 2019 11:48 am
It seems very unfair to have been in a safe harbor all year long only to be thrown from it a few days before the end of the year and be subject to penalties for not having paid estimated payments for earlier quarters. Is there any way you can include an explanation with what Form 2210 would have looked like had that large CG distribution had not occurred a few days before the end of the year?
Form 2210 instructs you to attach a statement if you're requesting a waiver. Something like this:
  • Taxes due including PTC repayment: $14,000
  • Taxes due excluding PTC repayment: $1,000
  • Underpayment penalty excluding PTC repayment: $0
You'll be more likely to get the waiver if you mention the PTC repayment. Schedule AI already shows the timing of income, but it doesn't show the PTC repayment.

If it's the first year you had to make an advance PTC repayment, be sure to mention it. The IRS is more likely to grant first-time waivers. It's harder to get a waiver if it's the second year.

michaeljc70
Posts: 4129
Joined: Thu Oct 15, 2015 3:53 pm

Re: Estimated tax penalty exceptions

Post by michaeljc70 » Sun Jan 13, 2019 12:39 pm

scrabbler1 wrote:
Sun Jan 13, 2019 12:29 pm
michaeljc70 wrote:
Sun Jan 13, 2019 12:16 pm
scrabbler1 wrote:
Sun Jan 13, 2019 12:06 pm
michaeljc70 wrote:
Sun Jan 13, 2019 11:55 am
scrabbler1 wrote:
Sun Jan 13, 2019 11:48 am


I haven't been hit with any underpayment penalty or interest, but I have been in a similar situation as you with regard to a large cap gains distribution at the end of the year erasing the ACA premium subsidy I got during the year. As I mentioned in a recent thread, Form 2210 doesn't help me make my case because until the day in late December I got the large CG distribution, I would never had to FILE Form 2210. My total federal tax liability, after deducting the ACA subsidy, would have been less than $1,000. That would also have resulted in my not having to make any estimated tax payments throughout the year, either.

It seems very unfair to have been in a safe harbor all year long only to be thrown from it a few days before the end of the year and be subject to penalties for not having paid estimated payments for earlier quarters. Is there any way you can include an explanation with what Form 2210 would have looked like had that large CG distribution had not occurred a few days before the end of the year?
You miscalculated your income when you applied for the ACA plan. I'm not sure how that is unfair or the IRS's fault.
That's bull. I allowed for a cap gains distribution when I applied for the ACA subsidy. Until those last few days, I had actually underestimated the ACA subsidy I was set to receive. The humongous CG distribution, which I could not have foreseen, not only exceeded my estimate, but it wiped out what I had already received in ACA subsidy. In the worksheet for Form 1040-ES, I was set to be in a safe harbor without making any estimated tax payments. Are you saying I should make an estimated tax payment for each of the first 3 quarters based on a guess of 4th quarter income I don't know if I will receive and haven't even gotten yet?

I did make a 4th quarter estimated tax payment to cover much of the added taxes due. I am fine with that.
What caused the huge CG distribution? Maybe you need to move things around if possible to keep that in a retirement account or invest in things with more predictable CG distributions. Again, I'm not sure what you are expecting. Forgiveness because the CG was larger than you thought?
I don't have any inside knowledge about how the fund's manager is going to behave when it comes to CG distributions at the end of the year. The stocks in the fund went up, what can I say? I would actually pay more in taxes if I liquidated the fund because my cost basis position is pretty low. I am an early retiree so I can't add anything to my rollover tIRA, nor would I want to.

Just as the OP feels he has been treated unfairly due to penalties, I would feel the same way if I had been treated the same way (which hasn't happened, perhaps I am flying under the IRS radar?). We don't oppose paying taxes on the added income, just penalties going back to earlier quarters which became triggered by the subsequent distribution.
As I recommended to the OP, don't take the upfront tax credits. You can get them when you file. That is the smart thing to do if you cannot predict your income will qualify or it will be close. You are asking for an interest/penalty free loan on the premium tax credits.

scrabbler1
Posts: 2273
Joined: Fri Nov 20, 2009 2:39 pm

Re: Estimated tax penalty exceptions

Post by scrabbler1 » Sun Jan 13, 2019 12:45 pm

talzara wrote:
Sun Jan 13, 2019 12:37 pm
scrabbler1 wrote:
Sun Jan 13, 2019 11:48 am
I haven't been hit with any underpayment penalty or interest, but I have been in a similar situation as you with regard to a large cap gains distribution at the end of the year erasing the ACA premium subsidy I got during the year. As I mentioned in a recent thread, Form 2210 doesn't help me make my case because until the day in late December I got the large CG distribution, I would never had to FILE Form 2210. My total federal tax liability, after deducting the ACA subsidy, would have been less than $1,000. That would also have resulted in my not having to make any estimated tax payments throughout the year, either.
As I wrote to the OP, you can ask for a waiver of the penalty. The OP doesn't want a waiver for 2017, but maybe you do.
scrabbler1 wrote:
Sun Jan 13, 2019 11:48 am
It seems very unfair to have been in a safe harbor all year long only to be thrown from it a few days before the end of the year and be subject to penalties for not having paid estimated payments for earlier quarters. Is there any way you can include an explanation with what Form 2210 would have looked like had that large CG distribution had not occurred a few days before the end of the year?
Form 2210 instructs you to attach a statement if you're requesting a waiver. Something like this:
  • Taxes due including PTC repayment: $14,000
  • Taxes due excluding PTC repayment: $1,000
  • Underpayment penalty excluding PTC repayment: $0
You'll be more likely to get the waiver if you mention the PTC repayment. Schedule AI already shows the timing of income, but it doesn't show the PTC repayment.

If it's the first year you had to make an advance PTC repayment, be sure to mention it. The IRS is more likely to grant first-time waivers. It's harder to get a waiver if it's the second year.
This is good to know if the IRS ever comes after me. They didn't in 2017 (assuming they could have), nor have they in any pear prior to that, when I was getting an ACA subsidy. Thanks.

talzara
Posts: 677
Joined: Thu Feb 12, 2009 7:40 pm

Re: Estimated tax penalty exceptions

Post by talzara » Sun Jan 13, 2019 1:03 pm

scrabbler1 wrote:
Sun Jan 13, 2019 12:45 pm
This is good to know if the IRS ever comes after me. They didn't in 2017 (assuming they could have), nor have they in any pear prior to that, when I was getting an ACA subsidy. Thanks.
For 2014, the IRS granted a blanket waiver for underpayment penalties due to advance PTC repayment. Notice 2015-9 said that you should file form 2210 and request the waiver, but you shouldn't include any calculations in your statement. That means the IRS had a program to subtract the waiver automatically from the underpayment penalty. It would have been easy to give everyone the waiver, even if they didn't ask for it.

I don't know why the IRS didn't charge you a penalty for 2015-2017. Maybe you didn't owe a penalty.

Since the OP was assessed a penalty for 2017, we know that the IRS is no longer giving an automatic waiver to everyone,

kaneohe
Posts: 5307
Joined: Mon Sep 22, 2008 12:38 pm

Re: Estimated tax penalty exceptions

Post by kaneohe » Sun Jan 13, 2019 1:05 pm

scrabbler1 wrote:
Sun Jan 13, 2019 11:48 am
[...................................................................
I haven't been hit with any underpayment penalty or interest, but I have been in a similar situation as you with regard to a large cap gains distribution at the end of the year erasing the ACA premium subsidy I got during the year. As I mentioned in a recent thread, Form 2210 doesn't help me make my case because until the day in late December I got the large CG distribution, I would never had to FILE Form 2210. My total federal tax liability, after deducting the ACA subsidy, would have been less than $1,000. That would also have resulted in my not having to make any estimated tax payments throughout the year, either.

It seems very unfair to have been in a safe harbor all year long only to be thrown from it a few days before the end of the year and be subject to penalties for not having paid estimated payments for earlier quarters. Is there any way you can include an explanation with what Form 2210 would have looked like had that large CG distribution had not occurred a few days before the end of the year?
Why wouldn't F2210 Sch AI have helped? It is designed for the lumpy income that you received and the timing of the estimated taxes paid is supposed to correlate w/ the lumpy income........so you would not be subject to penalties
for not having paid est. payments in earlier quarters but you would be penalized if you didn't make a large est. tax payment for Q4 when you received the income. It might be an interesting exercise to see if a large Q4 est.tax payment
could have made you ok.

If you are talking about a previous yr, the lack of any penalty may mean IRS hasn't got around to it yet......which would make filling out the F2210SchAI useful if you did make a large Q4 est. tax payment and then IRS came around later to collect a penalty. ...................or it may mean you got lucky and you got overlooked perhaps there were bigger fish to go after.

scrabbler1
Posts: 2273
Joined: Fri Nov 20, 2009 2:39 pm

Re: Estimated tax penalty exceptions

Post by scrabbler1 » Sun Jan 13, 2019 1:20 pm

kaneohe wrote:
Sun Jan 13, 2019 1:05 pm
scrabbler1 wrote:
Sun Jan 13, 2019 11:48 am
[...................................................................
I haven't been hit with any underpayment penalty or interest, but I have been in a similar situation as you with regard to a large cap gains distribution at the end of the year erasing the ACA premium subsidy I got during the year. As I mentioned in a recent thread, Form 2210 doesn't help me make my case because until the day in late December I got the large CG distribution, I would never had to FILE Form 2210. My total federal tax liability, after deducting the ACA subsidy, would have been less than $1,000. That would also have resulted in my not having to make any estimated tax payments throughout the year, either.

It seems very unfair to have been in a safe harbor all year long only to be thrown from it a few days before the end of the year and be subject to penalties for not having paid estimated payments for earlier quarters. Is there any way you can include an explanation with what Form 2210 would have looked like had that large CG distribution had not occurred a few days before the end of the year?
Why wouldn't F2210 Sch AI have helped? It is designed for the lumpy income that you received and the timing of the estimated taxes paid is supposed to correlate w/ the lumpy income........so you would not be subject to penalties
for not having paid est. payments in earlier quarters but you would be penalized if you didn't make a large est. tax payment for Q4 when you received the income. It might be an interesting exercise to see if a large Q4 est.tax payment
could have made you ok.

If you are talking about a previous yr, the lack of any penalty may mean IRS hasn't got around to it yet......which would make filling out the F2210SchAI useful if you did make a large Q4 est. tax payment and then IRS came around later to collect a penalty. ...................or it may mean you got lucky and you got overlooked perhaps there were bigger fish to go after.
Just for fun, I completed Form 2210 for my (lumpy) 2018 income. Without the large CG distribution in late December, I stop at Line 4 because my total tax liability is less than $1,000. With the large CG distribution in late December, I not only owe a large amount for the 4th quarter (which I expect, and have paid), but it also shows small amounts of estimated taxes due for the first 3 quarters. Revealing those earlier quarters of estimated taxes supposedly "due" but never paid opens up a can of worms. Talzara mentioned that I could request a waiver of any penalties for the first 3 quarters by showing how I would never had to file Form 2210 had that end-of-year distribution not happened. I choose to not file Form 2210 or the waiver request which is the same path I chose for my 2017 taxes.

I agree that I am likely flying under the radar. My total tax liability in 2017 was just over $2,000, most of it taxes and only about $500 was the repaid ACA subsidy. I paid about half of the total in 4th quarter estimated taxes. For 2018, I will pay about 75% of the taxes due via 4th quarter estimated taxes. Total taxes due are just over $3,000.

The OP's taxes due are larger than mine; not sure how much of it is due to the big ACA subsidy repayment of $18k. Does that make him a bigger fish?

scrabbler1
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Re: Estimated tax penalty exceptions

Post by scrabbler1 » Sun Jan 13, 2019 1:24 pm

talzara wrote:
Sun Jan 13, 2019 1:03 pm
scrabbler1 wrote:
Sun Jan 13, 2019 12:45 pm
This is good to know if the IRS ever comes after me. They didn't in 2017 (assuming they could have), nor have they in any pear prior to that, when I was getting an ACA subsidy. Thanks.
For 2014, the IRS granted a blanket waiver for underpayment penalties due to advance PTC repayment. Notice 2015-9 said that you should file form 2210 and request the waiver, but you shouldn't include any calculations in your statement. That means the IRS had a program to subtract the waiver automatically from the underpayment penalty. It would have been easy to give everyone the waiver, even if they didn't ask for it.

I don't know why the IRS didn't charge you a penalty for 2015-2017. Maybe you didn't owe a penalty.

Since the OP was assessed a penalty for 2017, we know that the IRS is no longer giving an automatic waiver to everyone,
In 2014-2016, my total tax liability was under $1,000, so no Form 2210 or tax penalty. No humongous cap gain distribution either year, too.

kaneohe
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Re: Estimated tax penalty exceptions

Post by kaneohe » Sun Jan 13, 2019 1:47 pm

scrabbler1 wrote:
Sun Jan 13, 2019 1:20 pm
........................................................

Why wouldn't F2210 Sch AI have helped? It is designed for the lumpy income that you received and the timing of the estimated taxes paid is supposed to correlate w/ the lumpy income........so you would not be subject to penalties
for not having paid est. payments in earlier quarters but you would be penalized if you didn't make a large est. tax payment for Q4 when you received the income. It might be an interesting exercise to see if a large Q4 est.tax payment
could have made you ok.

If you are talking about a previous yr, the lack of any penalty may mean IRS hasn't got around to it yet......which would make filling out the F2210SchAI useful if you did make a large Q4 est. tax payment and then IRS came around later to collect a penalty. ...................or it may mean you got lucky and you got overlooked perhaps there were bigger fish to go after.
Just for fun, I completed Form 2210 for my (lumpy) 2018 income. Without the large CG distribution in late December, I stop at Line 4 because my total tax liability is less than $1,000. With the large CG distribution in late December, I not only owe a large amount for the 4th quarter (which I expect, and have paid), but it also shows small amounts of estimated taxes due for the first 3 quarters. Revealing those earlier quarters of estimated taxes supposedly "due" but never paid opens up a can of worms. Talzara mentioned that I could request a waiver of any penalties for the first 3 quarters by showing how I would never had to file Form 2210 had that end-of-year distribution not happened. I choose to not file Form 2210 or the waiver request which is the same path I chose for my 2017 taxes.

I agree that I am likely flying under the radar. My total tax liability in 2017 was just over $2,000, most of it taxes and only about $500 was the repaid ACA subsidy. I paid about half of the total in 4th quarter estimated taxes. For 2018, I will pay about 75% of the taxes due via 4th quarter estimated taxes. Total taxes due are just over $3,000.

The OP's taxes due are larger than mine; not sure how much of it is due to the big ACA subsidy repayment of $18k. Does that make him a bigger fish?
[/quote]

Just curious what your estimated payments vs expected tax were? Reason is I'm in same boat w/ large Q4 distributions.
When I went thru SchAI it looked like if I increased my Q4 est. tax so total for yr was 90% of total taxes for yr, then no underpayments even for earlier quarters. If true for you too, you got 2 more days to pay more .

scrabbler1
Posts: 2273
Joined: Fri Nov 20, 2009 2:39 pm

Re: Estimated tax penalty exceptions

Post by scrabbler1 » Sun Jan 13, 2019 2:12 pm

kaneohe wrote:
Sun Jan 13, 2019 1:47 pm
scrabbler1 wrote:
Sun Jan 13, 2019 1:20 pm
........................................................

Why wouldn't F2210 Sch AI have helped? It is designed for the lumpy income that you received and the timing of the estimated taxes paid is supposed to correlate w/ the lumpy income........so you would not be subject to penalties
for not having paid est. payments in earlier quarters but you would be penalized if you didn't make a large est. tax payment for Q4 when you received the income. It might be an interesting exercise to see if a large Q4 est.tax payment
could have made you ok.

If you are talking about a previous yr, the lack of any penalty may mean IRS hasn't got around to it yet......which would make filling out the F2210SchAI useful if you did make a large Q4 est. tax payment and then IRS came around later to collect a penalty. ...................or it may mean you got lucky and you got overlooked perhaps there were bigger fish to go after.
Just for fun, I completed Form 2210 for my (lumpy) 2018 income. Without the large CG distribution in late December, I stop at Line 4 because my total tax liability is less than $1,000. With the large CG distribution in late December, I not only owe a large amount for the 4th quarter (which I expect, and have paid), but it also shows small amounts of estimated taxes due for the first 3 quarters. Revealing those earlier quarters of estimated taxes supposedly "due" but never paid opens up a can of worms. Talzara mentioned that I could request a waiver of any penalties for the first 3 quarters by showing how I would never had to file Form 2210 had that end-of-year distribution not happened. I choose to not file Form 2210 or the waiver request which is the same path I chose for my 2017 taxes.

I agree that I am likely flying under the radar. My total tax liability in 2017 was just over $2,000, most of it taxes and only about $500 was the repaid ACA subsidy. I paid about half of the total in 4th quarter estimated taxes. For 2018, I will pay about 75% of the taxes due via 4th quarter estimated taxes. Total taxes due are just over $3,000.

The OP's taxes due are larger than mine; not sure how much of it is due to the big ACA subsidy repayment of $18k. Does that make him a bigger fish?
Just curious what your estimated payments vs expected tax were? Reason is I'm in same boat w/ large Q4 distributions.
When I went thru SchAI it looked like if I increased my Q4 est. tax so total for yr was 90% of total taxes for yr, then no underpayments even for earlier quarters. If true for you too, you got 2 more days to pay more .
[/quote]

I raised my 4th quarter estimated tax payment so it is (a) much greater than my 2017 total tax liability, and (b) lowering my total tax due in April to be under $1,000. It's about 78% of my total 2018 tax liability. I should note that my 2018 tax liability is estimated because I don't yet know how much of my dividends are Qualified versus non-Qualified. It'll end up very close, though.

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celia
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Location: SoCal

Re: Estimated tax penalty exceptions [ACA premium underpayment penalty]

Post by celia » Sun Jan 13, 2019 2:34 pm

celentano wrote:
Sat Jan 12, 2019 3:55 pm
I just realized that IRS hit me with a nice penalty for not paying enough estimated taxes during 2017. I didn't think I had to pay the penalty, because on 27th of December I received a large Capital Gains Distribution from a mutual fund. This additional income disqualified me from keeping Obamacare Premium subsidies and I had pay all of it back ($13,000). This was the amount due (approximately) when I filed my taxes in April 2018. There was no way for me to predict this outcome during the year....
The way you would have predicted it was to look at your previous year's return.

You already knew the situation that put you where you are for 2018. You could appeal, but the response might be "You already knew this might happen since it happened in the previous year."

For example, are you going to repeat the same scenario in 2019 and then post again in 2020?

kaneohe
Posts: 5307
Joined: Mon Sep 22, 2008 12:38 pm

Re: Estimated tax penalty exceptions

Post by kaneohe » Sun Jan 13, 2019 3:28 pm

scrabbler1 wrote:
Sun Jan 13, 2019 2:12 pm
kaneohe wrote:
Sun Jan 13, 2019 1:47 pm
.................................................................................

Just curious what your estimated payments vs expected tax were? Reason is I'm in same boat w/ large Q4 distributions.
When I went thru SchAI it looked like if I increased my Q4 est. tax so total for yr was 90% of total taxes for yr, then no underpayments even for earlier quarters. If true for you too, you got 2 more days to pay more .
I raised my 4th quarter estimated tax payment so it is (a) much greater than my 2017 total tax liability, and (b) lowering my total tax due in April to be under $1,000. It's about 78% of my total 2018 tax liability. I should note that my 2018 tax liability is estimated because I don't yet know how much of my dividends are Qualified versus non-Qualified. It'll end up very close, though.
Sounds like your total tax last yr was about 2K which would be your safe harbor. Your large Q4 payment would have stopped the penalty clock so you would have the 1st 3 $500 quarterly payments with interest of 5% or so for 9,7,4 mos
for perhaps $40 so so total. Not a big deal I guess but I wonder if a somewhat bigger Q4 payment would be able to eliminate that. Probably not worth the time to do but it sounds like you've already had some "fun" with Sch AI.

Topic Author
celentano
Posts: 65
Joined: Wed Jun 13, 2018 2:55 pm

Re: Estimated tax penalty exceptions [ACA premium underpayment penalty]

Post by celentano » Sun Jan 13, 2019 4:34 pm

Thanks everyone! Great discussion on Estimated Tax Penalties, Unexpected CG Distributions at year end and 'Awesome ACA'. And special thanks to Scrabbler1 for agreeing with the unfairness of my situation. Paying back $18,000 is already very unfair for the lowest cost ACA plan with the highest deductible ($13000). I found out about the CG distribution on Dec. 27th, yes, I had the same situation last year, but then I thought it was a one time thing (not having it for many years prior to that). This is the second year in a row it paid the CG distributions in last week of December, so I will know better next year. However, If I did it all over again I would NEVER invest in a mutual fund. I had this mutual fund since early 90s and I have large gains that would result in big taxes if I were to liquidate. It is the biggest investment mistake for me. By the way my stock portfolio has done much better over the years and I am not a 'professional fund manager'.
About the penalties for 2017... I will follow the advise here of and try to get back the $300+ penalty (or some of it) I paid even though I have no patience to deal with unnecessarily complicated tax forms for every little thing.

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