No way to stop estimated tax penalties from accruing if you pay after January?

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johnanglemen
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No way to stop estimated tax penalties from accruing if you pay after January?

Post by johnanglemen »

Ordinarily, estimated tax penalties consist of interest that accrues on the amount that you're underpaid for a given quarter. The interest begins accruing on the estimated tax deadline for that quarter, and stops accruing when you make the payment. So if I owe $10,000 for Q1, but I don't pay it until September 15th, I'll owe 5 months' worth of interest on that underpayment.

There seems to be a peculiar difference with Q4 that is driving me a bit mad. Namely, it seems that the IRS stops accepting any "Estimated Tax" payments for the prior year on January 31st, whether you're paying by ACH or CC. So if I make a payment on January 31st, I only owe two weeks of interest, as usual. But if I'm ten minutes past that, it seems I'll have to pay interest on the amount as if I didn't pay it until April 15th - even if I'm prepared to make a payment immediately!

Ok, so they don't allow so-called "estimated" tax payments after that date. Logically, you would think that - at minimum - I could just make a "regular" payment coded as 1040 or an "extension" payment coded as 4868 and that would still stop further interest from accruing. But that doesn't seem to be the case. The instructions for form 2210 indicate that "regular" payments should be treated as having been made on April 15th, or the date you file your return, whichever is earlier. But I'm not prepared to file the return itself yet - and I'm usually not able to until October. Moreover, there appears to be no provision whatsoever for "extension" payments in the calculation, and indeed TurboTax doesn't even ask what date you made the extension payment on.

What am I missing here? Is it really the case that if you make an estimated tax payment on January 31st, you stop the penalty/interest clock just like with all other quarters, but beyond that point, you're stuck paying 2.5 months' worth of interest on your Q4 underpayment (and any earlier quarterly underpayments still outstanding), no matter what other type of payment you make to the IRS at that point? There seems to be no logic in it.
HomeStretch
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by HomeStretch »

You can file an extension online and make a payment with it.
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johnanglemen
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by johnanglemen »

HomeStretch wrote: Wed Jan 31, 2024 10:02 pm You can file an extension online and make a payment with it.
This does not stop estimated tax penalties from accruing.
HomeStretch
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by HomeStretch »

johnanglemen wrote: Wed Jan 31, 2024 10:05 pm
HomeStretch wrote: Wed Jan 31, 2024 10:02 pm You can file an extension online and make a payment with it.
This does not stop estimated tax penalties from accruing.
I was responding to this part of your post, below, and saying there was a way to make a tax payment online related to the prior year after Jan. 31. Are you saying even if you make sufficient (late) payment on Feb 1 as an extension payment that interest and penalties do not stop accruing after as of Feb. 1?
johnanglemen wrote: Wed Jan 31, 2024 9:41 pm … Namely, it seems that the IRS stops accepting any "Estimated Tax" payments for the prior year on January 31st …
Last edited by HomeStretch on Thu Feb 01, 2024 6:23 am, edited 1 time in total.
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johnanglemen
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by johnanglemen »

HomeStretch wrote: Wed Jan 31, 2024 10:13 pmAre you saying even if you make sufficient (late) payment on Feb 1 as an extension payment that interest and penalties do not stop accruing as of Feb. 1?
Correct, I see no mechanism by which that reduces the estimated tax penalty on the return.
HomeStretch
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by HomeStretch »

johnanglemen wrote: Wed Jan 31, 2024 10:34 pm
HomeStretch wrote: Wed Jan 31, 2024 10:13 pmAre you saying even if you make sufficient (late) payment on Feb 1 as an extension payment that interest and penalties do not stop accruing after as of Feb. 1?
Correct, I see no mechanism by which that reduces the estimated tax penalty on the return.
The penalty and interest accrued up to the date of the late payment are still owed but the late payment should stop the clock so additional penalty/interest does not accrue (increase) after the date of the late payment. There is an IRS first-time penalty waiver program to request a penalty waiver. Interest is generally not waived.
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by Katietsu »

johnanglemen wrote: Wed Jan 31, 2024 10:34 pm
HomeStretch wrote: Wed Jan 31, 2024 10:13 pmAre you saying even if you make sufficient (late) payment on Feb 1 as an extension payment that interest and penalties do not stop accruing as of Feb. 1?
Correct, I see no mechanism by which that reduces the estimated tax penalty on the return.
This is not true. In Part III Part B where the penalty is calculated, a great deal of time is spent on the number of days each payment is late. The number of days in 2024 that any payment is late is entered on line 12.

Maybe you are hung up on terminology? The IRS does not care what you call the payments made for a particular tax year. If you never submit a Q4 payment at all but do submit a sufficient payment with extension on January 15, there is no underpayment penalty. The number of days a Q4 payment is late will be 16 days if a Q4 payment is made on January 31. The number of days a Q4 payment is late is 17 days if the same or more is paid as an extension payment on February 1.
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BolderBoy
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by BolderBoy »

Katietsu wrote: Thu Feb 01, 2024 7:16 am
johnanglemen wrote: Wed Jan 31, 2024 10:34 pm
HomeStretch wrote: Wed Jan 31, 2024 10:13 pmAre you saying even if you make sufficient (late) payment on Feb 1 as an extension payment that interest and penalties do not stop accruing as of Feb. 1?
Correct, I see no mechanism by which that reduces the estimated tax penalty on the return.
This is not true. In Part III Part B where the penalty is calculated, a great deal of time is spent on the number of days each payment is late. The number of days in 2024 that any payment is late is entered on line 12.

Maybe you are hung up on terminology? The IRS does not care what you call the payments made for a particular tax year. If you never submit a Q4 payment at all but do submit a sufficient payment with extension on January 15, there is no underpayment penalty. The number of days a Q4 payment is late will be 16 days if a Q4 payment is made on January 31. The number of days a Q4 payment is late is 17 days if the same or more is paid as an extension payment on February 1.
+1.

This is how IRS Form 2210 has worked for at least 45 years.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
lstone19
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by lstone19 »

johnanglemen wrote: Wed Jan 31, 2024 9:41 pm Ok, so they don't allow so-called "estimated" tax payments after that date. Logically, you would think that - at minimum - I could just make a "regular" payment coded as 1040 or an "extension" payment coded as 4868 and that would still stop further interest from accruing. But that doesn't seem to be the case. The instructions for form 2210 indicate that "regular" payments should be treated as having been made on April 15th, or the date you file your return, whichever is earlier. But I'm not prepared to file the return itself yet - and I'm usually not able to until October. Moreover, there appears to be no provision whatsoever for "extension" payments in the calculation, and indeed TurboTax doesn't even ask what date you made the extension payment on.

What am I missing here? Is it really the case that if you make an estimated tax payment on January 31st, you stop the penalty/interest clock just like with all other quarters, but beyond that point, you're stuck paying 2.5 months' worth of interest on your Q4 underpayment (and any earlier quarterly underpayments still outstanding), no matter what other type of payment you make to the IRS at that point? There seems to be no logic in it.
Despite all the terminology, estimated payments, withholding, and payments with your return or extension are just payments to your tax account. I suspect one reason for shutting down estimated payments after 1/31 (and it may be just online payments - I'd bet a mailed check would be accepted) is people get confused by the years - many do not understand that the tax return they file IN 2024 is FOR 2023.

My bet is an extension payment is considered the same as a "regular" payment with your return - they just don't list all the possible combinations. As such, it's treated by the actual date when earlier than 4/15. I suspect there reason for the "4/15 or date you file, whichever is earlier" is that there is a difference between underpayment of estimated tax before 4/15 and late payment of taxes after 4/15. File after 4/15 and you're into the late payment penalties which I believe are more severe than the underpayment of estimated tax penalties.

Unless you check one of the 2210 Part II reasons, the IRS asks that you not file 2210 and let them calculate the penalty. I'd file the extension today and when the IRS sends you the underpayment penalty bill, I'd bet it will be based on actual date of the extension payment.
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johnanglemen
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by johnanglemen »

Katietsu wrote: Thu Feb 01, 2024 7:16 am
johnanglemen wrote: Wed Jan 31, 2024 10:34 pm
HomeStretch wrote: Wed Jan 31, 2024 10:13 pmAre you saying even if you make sufficient (late) payment on Feb 1 as an extension payment that interest and penalties do not stop accruing as of Feb. 1?
Correct, I see no mechanism by which that reduces the estimated tax penalty on the return.
This is not true. In Part III Part B where the penalty is calculated, a great deal of time is spent on the number of days each payment is late. The number of days in 2024 that any payment is late is entered on line 12.

Maybe you are hung up on terminology? The IRS does not care what you call the payments made for a particular tax year. If you never submit a Q4 payment at all but do submit a sufficient payment with extension on January 15, there is no underpayment penalty. The number of days a Q4 payment is late will be 16 days if a Q4 payment is made on January 31. The number of days a Q4 payment is late is 17 days if the same or more is paid as an extension payment on February 1.
No, I am not hung up on the terminology. The instructions for form 2210 state the following:
Table 1—List your estimated tax payments for 2023. Before
completing line 11, enter in Table 1 the payments you made for 2023.
Include the following payments.
• Any overpayment from your 2022 return applied to your 2023
estimated tax payments. Generally, treat the payment as made on
April 15, 2023.
• Estimated tax payments you made for the 2023 tax year, plus any
federal income tax and excess social security and RRTA tax
withheld.
• Any payment made on your balance due return for 2023. Use the
date you filed (or will file) your return or April 15, 2024, whichever is
earlier, as the payment date for these purposes.
Please see the third bullet point.
Last edited by johnanglemen on Thu Feb 01, 2024 12:46 pm, edited 2 times in total.
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johnanglemen
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by johnanglemen »

BolderBoy wrote: Thu Feb 01, 2024 11:31 am
Katietsu wrote: Thu Feb 01, 2024 7:16 am
johnanglemen wrote: Wed Jan 31, 2024 10:34 pm
HomeStretch wrote: Wed Jan 31, 2024 10:13 pmAre you saying even if you make sufficient (late) payment on Feb 1 as an extension payment that interest and penalties do not stop accruing as of Feb. 1?
Correct, I see no mechanism by which that reduces the estimated tax penalty on the return.
This is not true. In Part III Part B where the penalty is calculated, a great deal of time is spent on the number of days each payment is late. The number of days in 2024 that any payment is late is entered on line 12.

Maybe you are hung up on terminology? The IRS does not care what you call the payments made for a particular tax year. If you never submit a Q4 payment at all but do submit a sufficient payment with extension on January 15, there is no underpayment penalty. The number of days a Q4 payment is late will be 16 days if a Q4 payment is made on January 31. The number of days a Q4 payment is late is 17 days if the same or more is paid as an extension payment on February 1.
+1.

This is how IRS Form 2210 has worked for at least 45 years.
And yet nobody here can explain the instructions for the form that suggest otherwise, or explain why TurboTax doesn't produce that result :?
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johnanglemen
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by johnanglemen »

lstone19 wrote: Thu Feb 01, 2024 12:36 pm Unless you check one of the 2210 Part II reasons, the IRS asks that you not file 2210 and let them calculate the penalty. I'd file the extension today and when the IRS sends you the underpayment penalty bill, I'd bet it will be based on actual date of the extension payment.
This isn't an option unfortunately because I need to annualize.
heisenberg.
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by heisenberg. »

I am glad you are bringing this up, however sadly I have not much value to add other than to confirm that this is a very misunderstood topic and there is very little accurate information on the internet - probably because most people dont even realise they are paying the interest.

Maybe it is because prople confuse penalty and interest like the responses above

I worked with 2 CPAs who were entirely useless on the topic.

For me personally the only reasonable solution from an efforts to benefits perspective was to well overpay my estimated taxes in Q1.. but I am open to ideas
lstone19
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by lstone19 »

johnanglemen wrote: Wed Jan 31, 2024 9:41 pm Namely, it seems that the IRS stops accepting any "Estimated Tax" payments for the prior year on January 31st, whether you're paying by ACH or CC.
What has led you to that conclusion? Is it because one system won't let you? I just went through the steps on EFTPS and it seemed quite willing to let me make a 2023 estimated payment (I did not actually make the payment). As I said earlier, send them a check with a voucher and I suspect it will be accepted and treated as an estimated payment.
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johnanglemen
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by johnanglemen »

lstone19 wrote: Thu Feb 01, 2024 12:52 pm
johnanglemen wrote: Wed Jan 31, 2024 9:41 pm Namely, it seems that the IRS stops accepting any "Estimated Tax" payments for the prior year on January 31st, whether you're paying by ACH or CC.
What has led you to that conclusion? Is it because one system won't let you? I just went through the steps on EFTPS and it seemed quite willing to let me make a 2023 estimated payment (I did not actually make the payment). As I said earlier, send them a check with a voucher and I suspect it will be accepted and treated as an estimated payment.
It's not just one system. In addition to none of the credit card processors accepting it, IRS Direct Pay states the following (if you press the "?" next to "Reason for Payment" and expand "Estimated Tax"):
Make estimated tax payments in advance of the timely filing of your return. Depending on your income, your payment may be due quarterly, or as calculated on Form 1040-ES, Estimated Tax for Individuals. You do not have to indicate the month or quarter associated with each payment. If you want to make a late estimated tax payment after January 31st (for last year), select Balance Due as the reason for payment.
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by toddthebod »

Two questions, both already asked previously: Does the IRS consider a payment with request for extension to be the date you file when considering the earlier of the date you file or April 15th? Second, what happens if you send in a 2023 1040-ES paper voucher with your payment on February 1, 2024?
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johnanglemen
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by johnanglemen »

toddthebod wrote: Thu Feb 01, 2024 1:04 pm Two questions, both already asked previously: Does the IRS consider a payment with request for extension to be the date you file when considering the earlier of the date you file or April 15th?
Unclear; the instructions for form 2210 do not address extension payments. I do know that extension payments and return payments are both categorized as "Balance Payments" on the IRS account payment history, so perhaps the "balance due" instructions on 2210 apply to them as well, but it's unknown. I also know that tax software like TurboTax does not flow extension payments through to the penalty calculation (or even ask when the extension payment was made), so it does not stop the interest clock - but that is not dispositive.
toddthebod wrote: Thu Feb 01, 2024 1:04 pm Second, what happens if you send in a 2023 1040-ES paper voucher with your payment on February 1, 2024?
Unclear; only way to know is to try it, though the outcome probably wouldn't be clear for at least a year (if ever!).
Dirghatamas
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by Dirghatamas »

johnanglemen wrote: Wed Jan 31, 2024 9:41 pm There seems to be a peculiar difference with Q4 that is driving me a bit mad. Namely, it seems that the IRS stops accepting any "Estimated Tax" payments for the prior year on January 31st, whether you're paying by ACH or CC. So if I make a payment on January 31st, I only owe two weeks of interest, as usual. But if I'm ten minutes past that, it seems I'll have to pay interest on the amount as if I didn't pay it until April 15th - even if I'm prepared to make a payment immediately!
OP, your understanding is emphatically incorrect, based on my personal records.

2023 Estimated taxes: I used IRS EFTPS system today early morning to pay my estimated taxes for 2023 (plain forgot in Jan). It accepted my request with a payment date of Feb 1. I already got a confirmation email from EFTPS as well as a confirmation email and text from my bank that the amount was debited by IRS. So, in this case same day ACH (actually much less than a day!) worked. This was done early morning of Feb 1. It is possible if you do later in the day (maybe after noon), they may push your transfer to the next day, but there is no hard cutoff of Jan 31st, you can do estimated payments in Jan, Feb, March, April...IRS doesn't care. I have always used EFTPS and ACH rather than paper checks or credit cards so no idea about other systems. EFTPS is tried and old/trusted, just use it.

2022 taxes: Your post piqued my curiosity: Last year, my records show that I paid my last "estimated taxes" payment on 4/14/2023 !. I also paid a "final balance" payment on a later day as part of extension. Just like you, I had some documents not yet ready in April and filed my final taxes in October. Turbotax filed the form 2210 underpayment penalties and DID take every tax payment date correctly. My balance due in October was 0 during final filing. I have not received any further query from IRS so assume they agree with Turbo Tax regarding this form handling.
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by lstone19 »

OP, you appear to be looking for a solution that is beyond our capability to provide (re-opening estimated payments via the channels you've tried). You've been given a couple of suggestions - paying via EFTPS or paying by check and I would try one of those.

Also, I just played with TT. So you could make an extension payment on-line, then tell TT you made an estimated payment on the same day. Despite extension payments being handled slightly differently on your 1040, I doubt the IRS will care. But because of that, I'd lean to one the two ways mentioned in my first paragraph.
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by FactualFran »

toddthebod wrote: Thu Feb 01, 2024 1:04 pm Two questions, both already asked previously: Does the IRS consider a payment with request for extension to be the date you file when considering the earlier of the date you file or April 15th? Second, what happens if you send in a 2023 1040-ES paper voucher with your payment on February 1, 2024?
Let's hope that the IRS credits payments when they receive them and credits different types of income tax payments (estimated, with return, with extension request) to the income tax for the tax year specified with the payment.
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by Northern Flicker »

johnanglemen wrote: Thu Feb 01, 2024 12:39 pm
No, I am not hung up on the terminology. The instructions for form 2210 state the following:
Table 1—List your estimated tax payments for 2023. Before
completing line 11, enter in Table 1 the payments you made for 2023.
Include the following payments.
...
• Any payment made on your balance due return for 2023. Use the
date you filed (or will file) your return or April 15, 2024, whichever is
earlier, as the payment date for these purposes.
Please see the third bullet point.
Do the payments referenced by the red text include estimated payments, or just the balance due with the return?
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by Dirghatamas »

johnanglemen wrote: Thu Feb 01, 2024 12:59 pm

It's not just one system. In addition to none of the credit card processors accepting it, IRS Direct Pay states the following (if you press the "?" next to "Reason for Payment" and expand "Estimated Tax"):
John
I had some time to kill this afternoon and your topic piqued my nerd brain, given I had nothing to do. I have already answered your original question in my earlier post, that it IS possible to do estimated tax payments after Jan 31 all the way to April 14th using EFTPS (I did today and also last year).

I was curious as to why you are finding a different behavior using other systems. I logged into my IRS account (not EFTPS account) to see how it categorizes my past payments made through EFTPS. It also has a payment option tab that I had noticed before. I suppose it is the same as the newer IRS direct pay system (or linked to it). I tried to use that system to set up a mock payment for estimated taxes. As you point out, that system only lets you enter tax year 2024 as of today (Feb 1st). If you try to pay 2023 taxes, it just asks for the amount and doesn't give an option of estimated taxes.

I then logged into EFTPS again to see if my earlier transaction today was just a fluke because of early morning. No, that system still (afternoon), lets you select 2023 as the tax year for your estimated tax payments!

I also double checked my IRS account (not EFTPS account) to see what it thought was the code of my earlier payments. It correctly has my 2023 estimated tax paid today Feb 1st through EFTPS. It also correctly has my April 14th 2023 payment for tax year 2022 as estimated taxes. It codes my April 18th 2023 extension payment for tax year 2022 as "balance payment".

What I suspect is happening is that the older system (EFTPS) and the newer system (Direct Pay) may not have the same software.

I don't think it matters in the end. I suspect IRS doesn't care what the money paid is called: "estimated" or "balance". It simply logs when the payment was made, for what tax year and accrues interest daily in its calculations. So, there is no real difference and no hard dates for any of these payments: Its "pay as you go" tax system that just accrues interest daily.

April 15th is a real HARD deadline that does matter. Payments made before that and after that are materially different because IRS charges onerous penalties after that. Before that, if you pay any money on a given date or the next date, the penalty is just one day of interest, nothing more onerous.

I don't like the pre April 15th name of "underpayment penalty". Its just an interest of FF rates + 3%. So there is no real "penalty". Before the Fed Fund rates went up like crazy, I used to just ignore the estimated taxes and pay the modest "penalty" at tax time. My thinking used to be that my 100% equities portfolio has a better expected after tax return than FF+ 3%. This was obviously true with FF at ~0% and IRS penalty at 3% but now with FF at ~5% and IRS penalty rate at 8%, it is prudent to pay the estimated taxes reasonably early! In all cases, it is prudent to NOT defer payments to after April 15th. The rates go up a lot after that!
lstone19
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by lstone19 »

lstone19 wrote: Thu Feb 01, 2024 4:41 pm Also, I just played with TT. So you could make an extension payment on-line, then tell TT you made an estimated payment on the same day. Despite extension payments being handled slightly differently on your 1040, I doubt the IRS will care. But because of that, I'd lean to one the two ways mentioned in my first paragraph.
One more thing. TT sometimes enforces relationships between forms that don't really exist. If you filed an extension and made a payment, while it would be put on Schedule 3 as a payment with extension, the 2210 penalty calculation is done on a worksheet that you do not file and just want "Date and amount of each payment applied to the underpayment." If TT only applies payments that you said were estimated payments rather than the extension payment, that is a bug in TT.

But more likely, TT does not ask about the date of the extension payment unless it is relevant. As far as I can tell, TT applies a layered approach to eliminating the underpayment penalty so it only asks for some things if relevant. Once the penalty is zero, there is no need to go further. I have a feeling if it needs to, it will ask for the date of the extension payment.
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by MarkNYC »

johnanglemen wrote: Thu Feb 01, 2024 12:39 pm No, I am not hung up on the terminology. The instructions for form 2210 state the following:
Table 1—List your estimated tax payments for 2023. Before
completing line 11, enter in Table 1 the payments you made for 2023.
Include the following payments.
• Any overpayment from your 2022 return applied to your 2023
estimated tax payments. Generally, treat the payment as made on
April 15, 2023.
• Estimated tax payments you made for the 2023 tax year, plus any
federal income tax and excess social security and RRTA tax
withheld.
• Any payment made on your balance due return for 2023. Use the
date you filed (or will file) your return or April 15, 2024, whichever is
earlier, as the payment date for these purposes.
Please see the third bullet point.
I think you are misreading the third bullet point. It indicates that if you are on extension and file the return and pay in, say August, the penalty calculation ends on April 15, because that is earlier. If instead you file the return and pay on March 1st, then the penalty calculation ends March 1st because that is earlier than April 15.

In addition, the underpayment penalty is calculated on the Form 2210 Worksheet. Lines 11-13 deal with the 4th pay period/qtr. For line 12 it states: "Number of days from date on line 11 to the date the amount on line 1A was paid or 4/15/24, whichever is earlier." So if the amount due is paid Feb 10, then the penalty calculation ends Feb 10.
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by bewisefinancially »

Dirghatamas wrote: Thu Feb 01, 2024 6:41 pm
johnanglemen wrote: Thu Feb 01, 2024 12:59 pm

It's not just one system. In addition to none of the credit card processors accepting it, IRS Direct Pay states the following (if you press the "?" next to "Reason for Payment" and expand "Estimated Tax"):
John
I had some time to kill this afternoon and your topic piqued my nerd brain, given I had nothing to do. I have already answered your original question in my earlier post, that it IS possible to do estimated tax payments after Jan 31 all the way to April 14th using EFTPS (I did today and also last year).

I was curious as to why you are finding a different behavior using other systems. I logged into my IRS account (not EFTPS account) to see how it categorizes my past payments made through EFTPS. It also has a payment option tab that I had noticed before. I suppose it is the same as the newer IRS direct pay system (or linked to it). I tried to use that system to set up a mock payment for estimated taxes. As you point out, that system only lets you enter tax year 2024 as of today (Feb 1st). If you try to pay 2023 taxes, it just asks for the amount and doesn't give an option of estimated taxes.

I then logged into EFTPS again to see if my earlier transaction today was just a fluke because of early morning. No, that system still (afternoon), lets you select 2023 as the tax year for your estimated tax payments!

I also double checked my IRS account (not EFTPS account) to see what it thought was the code of my earlier payments. It correctly has my 2023 estimated tax paid today Feb 1st through EFTPS. It also correctly has my April 14th 2023 payment for tax year 2022 as estimated taxes. It codes my April 18th 2023 extension payment for tax year 2022 as "balance payment".

What I suspect is happening is that the older system (EFTPS) and the newer system (Direct Pay) may not have the same software.

I don't think it matters in the end. I suspect IRS doesn't care what the money paid is called: "estimated" or "balance". It simply logs when the payment was made, for what tax year and accrues interest daily in its calculations. So, there is no real difference and no hard dates for any of these payments: Its "pay as you go" tax system that just accrues interest daily.

April 15th is a real HARD deadline that does matter. Payments made before that and after that are materially different because IRS charges onerous penalties after that. Before that, if you pay any money on a given date or the next date, the penalty is just one day of interest, nothing more onerous.

I don't like the pre April 15th name of "underpayment penalty". Its just an interest of FF rates + 3%. So there is no real "penalty". Before the Fed Fund rates went up like crazy, I used to just ignore the estimated taxes and pay the modest "penalty" at tax time. My thinking used to be that my 100% equities portfolio has a better expected after tax return than FF+ 3%. This was obviously true with FF at ~0% and IRS penalty at 3% but now with FF at ~5% and IRS penalty rate at 8%, it is prudent to pay the estimated taxes reasonably early! In all cases, it is prudent to NOT defer payments to after April 15th. The rates go up a lot after that!
Can you please help how the EFTPS account is different from Direct Pay? I have done the first-time estimated payments in Dec'2023 but still owe ~$8000 to IRS after initial calculation while preparing a rough return for 2023. Can you please suggest and guide how to create an EFTPS account and pay these estimated taxes now to stop the daily interest imposition? Pls suggest.
Dirghatamas
Posts: 576
Joined: Fri Jan 01, 2016 5:18 pm

Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by Dirghatamas »

bewisefinancially wrote: Fri Feb 09, 2024 8:42 pm
Dirghatamas wrote: Thu Feb 01, 2024 6:41 pm
johnanglemen wrote: Thu Feb 01, 2024 12:59 pm

It's not just one system. In addition to none of the credit card processors accepting it, IRS Direct Pay states the following (if you press the "?" next to "Reason for Payment" and expand "Estimated Tax"):
John
I had some time to kill this afternoon and your topic piqued my nerd brain, given I had nothing to do. I have already answered your original question in my earlier post, that it IS possible to do estimated tax payments after Jan 31 all the way to April 14th using EFTPS (I did today and also last year).
Can you please help how the EFTPS account is different from Direct Pay? I have done the first-time estimated payments in Dec'2023 but still owe ~$8000 to IRS after initial calculation while preparing a rough return for 2023. Can you please suggest and guide how to create an EFTPS account and pay these estimated taxes now to stop the daily interest imposition? Pls suggest.
Bewisefinacially

Let me answer your very specific question about EFTPS but also the question I THINK you are asking (because it is not clear that you NEED to create an EFTPS account at all right now).

John's question originally was whether the IRS will allow you to post estimated taxes for tax year 2023 after Jan 31st. As I and others pointed out, you certainly can using EFTPS. Obviously, you need to create an EFTPS account for that.

However, I do believe it doesn't matter for John's case or your case. If you have access to Direct Pay (which doesn't need an account) and it lets you pay 2023 taxes but calls them by a different name (balance rather than estimated), its not going to make a difference in the final under payment penalty. What matters is how much you pay, for what tax year and what date. What you "call" the payment is irrelevant.

Further, using EFTPS vs. directpay or paper check will NOT suddenly remove any daily interest imposition. That's not how it works. The account you pay from (direct pay or EFTPS) or what you call the payment will NOT suddenly lead to a lower total tax bill.

IRS calls our tax system a "pay as you go" system. So, if you owe an tax money, its going to accrue interest daily till you finish paying it in full. The interest rate is Federal Fund rate + 3% till April 15th and much higher after that.

Still, coming to EFTPS vs. direct pay, there are 3 electronic ways to pay to IRS directly using the govt (rather than any middle men or credit cards etc ). The simplest is direct pay, which you already use, which doesn't require an account but DOES require you to input a bunch of info about yourself and your past year taxes. It also lets you make only 1 payment and doesn't remember your banks etc. (when I had played with it a few years ago, although I don't actually use it so it may have been improved). So, it is good for an occasional use but more work if you use it constantly.

The other two ways is to create online accounts. You can create an actual IRS online account. This lets you have a look at your tax forms, download the transcripts in future, has IRS notices and ALSO allows you to pay. It remembers your banks. Its payment screen is similar to direct pay so it may actually be the same under the hood (I am just guessing, I don't know for sure).

EFTPS is a much older and established system that is ONLY used for payments. It is a separate account from your normal IRS account that you need to create online. When I did it (many years ago), it took multiple weeks to set it up as it required a pin that they would mail to you. It also uses LOGIN.GOV and/or ID.ME for verification. IRS account uses ID.ME for verification. If EFTPS has changed its verification scheme recently to be much quicker, some one could correct me (my account is from many, many moons ago). ID.ME is a NON-GoVT entity... just something to be aware of.

An EFTPS account is useful for many (including me) because it is much more sophisticated. It lets you schedule several future payments (for future quarters and separate years estimated payments). It remembers your banks.

As to WHY the IRS has 3 separate online payment options instead of one, I don't know. Probably due to bureaucracy and to help confuse us all :oops:

Whether you need to create an EFTPS account depends on your usage. If you simply want to make a 1 time payment and don't see yourself doing all this again and again, it would be a waste of time. Direct Pay would be far simpler. However, given one pays taxes for entire life, it is prudent to create an online IRS account and (IMO) also EFTPS. It doesn't make sense for a 1 time or infrequent usage.

Here is the link to EFTPS home page where you can find out how to enroll
https://www.eftps.gov/eftps/direct/EftpsHome.page

Given your inquiry, I would ask: WHY do you want to create an EFTPS account?
bewisefinancially
Posts: 34
Joined: Sat Dec 23, 2023 7:05 pm

Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by bewisefinancially »

Dirghatamas wrote: Fri Feb 09, 2024 9:37 pm
bewisefinancially wrote: Fri Feb 09, 2024 8:42 pm
Dirghatamas wrote: Thu Feb 01, 2024 6:41 pm
johnanglemen wrote: Thu Feb 01, 2024 12:59 pm

It's not just one system. In addition to none of the credit card processors accepting it, IRS Direct Pay states the following (if you press the "?" next to "Reason for Payment" and expand "Estimated Tax"):
John
I had some time to kill this afternoon and your topic piqued my nerd brain, given I had nothing to do. I have already answered your original question in my earlier post, that it IS possible to do estimated tax payments after Jan 31 all the way to April 14th using EFTPS (I did today and also last year).
Can you please help how the EFTPS account is different from Direct Pay? I have done the first-time estimated payments in Dec'2023 but still owe ~$8000 to IRS after initial calculation while preparing a rough return for 2023. Can you please suggest and guide how to create an EFTPS account and pay these estimated taxes now to stop the daily interest imposition? Pls suggest.
Bewisefinacially

Let me answer your very specific question about EFTPS but also the question I THINK you are asking (because it is not clear that you NEED to create an EFTPS account at all right now).

John's question originally was whether the IRS will allow you to post estimated taxes for tax year 2023 after Jan 31st. As I and others pointed out, you certainly can using EFTPS. Obviously, you need to create an EFTPS account for that.

However, I do believe it doesn't matter for John's case or your case. If you have access to Direct Pay (which doesn't need an account) and it lets you pay 2023 taxes but calls them by a different name (balance rather than estimated), its not going to make a difference in the final under payment penalty. What matters is how much you pay, for what tax year and what date. What you "call" the payment is irrelevant.

Further, using EFTPS vs. directpay or paper check will NOT suddenly remove any daily interest imposition. That's not how it works. The account you pay from (direct pay or EFTPS) or what you call the payment will NOT suddenly lead to a lower total tax bill.

IRS calls our tax system a "pay as you go" system. So, if you owe an tax money, its going to accrue interest daily till you finish paying it in full. The interest rate is Federal Fund rate + 3% till April 15th and much higher after that.

Still, coming to EFTPS vs. direct pay, there are 3 electronic ways to pay to IRS directly using the govt (rather than any middle men or credit cards etc ). The simplest is direct pay, which you already use, which doesn't require an account but DOES require you to input a bunch of info about yourself and your past year taxes. It also lets you make only 1 payment and doesn't remember your banks etc. (when I had played with it a few years ago, although I don't actually use it so it may have been improved). So, it is good for an occasional use but more work if you use it constantly.

The other two ways is to create online accounts. You can create an actual IRS online account. This lets you have a look at your tax forms, download the transcripts in future, has IRS notices and ALSO allows you to pay. It remembers your banks. Its payment screen is similar to direct pay so it may actually be the same under the hood (I am just guessing, I don't know for sure).

EFTPS is a much older and established system that is ONLY used for payments. It is a separate account from your normal IRS account that you need to create online. When I did it (many years ago), it took multiple weeks to set it up as it required a pin that they would mail to you. It also uses LOGIN.GOV and/or ID.ME for verification. IRS account uses ID.ME for verification. If EFTPS has changed its verification scheme recently to be much quicker, some one could correct me (my account is from many, many moons ago). ID.ME is a NON-GoVT entity... just something to be aware of.

An EFTPS account is useful for many (including me) because it is much more sophisticated. It lets you schedule several future payments (for future quarters and separate years estimated payments). It remembers your banks.

As to WHY the IRS has 3 separate online payment options instead of one, I don't know. Probably due to bureaucracy and to help confuse us all :oops:

Whether you need to create an EFTPS account depends on your usage. If you simply want to make a 1 time payment and don't see yourself doing all this again and again, it would be a waste of time. Direct Pay would be far simpler. However, given one pays taxes for entire life, it is prudent to create an online IRS account and (IMO) also EFTPS. It doesn't make sense for a 1 time or infrequent usage.

Here is the link to EFTPS home page where you can find out how to enroll
https://www.eftps.gov/eftps/direct/EftpsHome.page

Given your inquiry, I would ask: WHY do you want to create an EFTPS account?
Thanks for the detailed response. 👍
Question:
- did you or anyone you know tried using balance option from directPay in the past as i don't want to stuck money under different code because I won't have the money to pay later and request refund??? My apology, uncle Sam is already killing me.
- If I make all the taxes i owe tomorrow on 02/10 e.g.... will it get me out of getting interest accrued daily and help me to save few dollers??? If not then is not it better to make payment in April before 15th?

Pls suggest.
Dirghatamas
Posts: 576
Joined: Fri Jan 01, 2016 5:18 pm

Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by Dirghatamas »

Bewisefinacially
I am an engineer not a tax lawyer, so my input to you is just based on my experience. YMMV.

Here's what I would do in your case

1) Safe Harbor: You say you already paid most of your taxes in Dec but found out that you owe ~$8000 based on rough calc but don't have final forms yet. Very common. Given the smallish amount owed, the first thing is to figure out if you need to do anything at all right now. It could be that you have already met 90% of your taxes or other safe harbor rules (100% of last year taxes or 110% if high income). If you are in safe harbor, then you will not be charged any interest by IRS till April 15.

2) Balance: If you are not sure that you are in safe harbor, have the money AND are reasonably sure you owe more than 8000, I would go ahead and pay it tomorrow 2/10. Just use direct pay and call it whatever the tool tells you to call it. If you have underpayment penalty at tax time and if you use software like Turbotax or whatever, enter your estimated tax dates to INCLUDE tomorrow's payment.

Last year, I made estimated tax payments according to my records on 1/09/2023 and also on 4/14/2023 for 2022 tax year. I also made the last payment on 4/18/2023. Turbo tax handled it just fine. My actual tax filing was in October (but last payment was 4/18).

All my payments were using EFTPS. I predict direct pay will behave similar to EFTPS but can't guarantee that because I have never actually used it.

This is just based on my experience. I am not a tax lawyer so don't blame me if direct pay behaves weirdly. I have nothing further info for you. Others who actually use Direct Pay should chime in.
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BrandonBogle
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Joined: Mon Jan 28, 2013 10:19 pm

Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by BrandonBogle »

I ran into a similar problem. I missed the 1/15 deadline and made my IRS account shows my payment on 1/22. However, my understanding of the instructions is that a 4th Qtr penalty is waived if paid by 1/31.

I use TurboTax for taxes and if I fill out their questionnaire/form 2210, it requests the date the payment was made or will be made if before 4/15. Great, punch in 1/22/2024 and it calculates a $0 penalty. However, TurboTax (desktop on Mac if it matters) then puts in red that the date given cannot be before today's date even though I did make the payment before today. If I remove the date, now a penalty actually shows up. My math shows the penalty is being calculated as if payment was on 4/15.

How does one get around this inconsistency? Is this a bug in TurboTax? It is odd that if I put the date in there, it does indeed calculate the penalty correctly and if I go to forms mode, I can then move to a different form and return to the questionnaire. It does, however, then flag the form as having errors. Any thoughts anyone?
lstone19
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Location: Nevada

Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by lstone19 »

BrandonBogle wrote: Sat Feb 10, 2024 3:55 am I ran into a similar problem. I missed the 1/15 deadline and made my IRS account shows my payment on 1/22. However, my understanding of the instructions is that a 4th Qtr penalty is waived if paid by 1/31.

I use TurboTax for taxes and if I fill out their questionnaire/form 2210, it requests the date the payment was made or will be made if before 4/15. Great, punch in 1/22/2024 and it calculates a $0 penalty. However, TurboTax (desktop on Mac if it matters) then puts in red that the date given cannot be before today's date even though I did make the payment before today. If I remove the date, now a penalty actually shows up. My math shows the penalty is being calculated as if payment was on 4/15.

How does one get around this inconsistency? Is this a bug in TurboTax? It is odd that if I put the date in there, it does indeed calculate the penalty correctly and if I go to forms mode, I can then move to a different form and return to the questionnaire. It does, however, then flag the form as having errors. Any thoughts anyone?
A fourth quarter penalty is waived if both paid and filed by 1/31. Since it's now February, I assume you have not filed yet so that waiver is out.

Are you trying to enter this as a payment with return or as an estimated payment? I did my own playing and I encountered the same issue if you enter it as a payment with your return. But it will let you show an estimated payment made on 1/22/24.

Are you checking any of the 2210 Part II reasons? If not, the IRS asks that you not file 2210 and let them calculate the penalty. TT will ask if you want to pay the penalty with your return or let the IRS bill you. If you select let the IRS bill you, then TT should not include 2210. The IRS knows when you made payments and will calculate it correctly.
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BrandonBogle
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Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by BrandonBogle »

lstone19 wrote: Sat Feb 10, 2024 11:07 am A fourth quarter penalty is waived if both paid and filed by 1/31. Since it's now February, I assume you have not filed yet so that waiver is out.

Are you trying to enter this as a payment with return or as an estimated payment? I did my own playing and I encountered the same issue if you enter it as a payment with your return. But it will let you show an estimated payment made on 1/22/24.

Are you checking any of the 2210 Part II reasons? If not, the IRS asks that you not file 2210 and let them calculate the penalty. TT will ask if you want to pay the penalty with your return or let the IRS bill you. If you select let the IRS bill you, then TT should not include 2210. The IRS knows when you made payments and will calculate it correctly.
Thank you. I did the estimated payment and filed an extension without a payment, but actual filing not yet since one of the forms isn’t ready in TT and TT states a different one is pending IRS revision, so I won’t be filing until end of Feb or early March.

I will be submitting the 2210 since my withholding was very front-loaded. I reduced my holdings based on my EV purchase in February 2023 (not until April in case it interfered with quarter totals), but I hadn’t expected my bonus this year to be 2x last years. Learning experience as I never had to do estimated taxes before.

Thankfully, the Q4 penalty is only $8, so I’m not worried about it.
bewisefinancially
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Joined: Sat Dec 23, 2023 7:05 pm

Re: No way to stop estimated tax penalties from accruing if you pay after January?

Post by bewisefinancially »

johnanglemen wrote: Thu Feb 01, 2024 12:59 pm
lstone19 wrote: Thu Feb 01, 2024 12:52 pm
johnanglemen wrote: Wed Jan 31, 2024 9:41 pm Namely, it seems that the IRS stops accepting any "Estimated Tax" payments for the prior year on January 31st, whether you're paying by ACH or CC.
What has led you to that conclusion? Is it because one system won't let you? I just went through the steps on EFTPS and it seemed quite willing to let me make a 2023 estimated payment (I did not actually make the payment). As I said earlier, send them a check with a voucher and I suspect it will be accepted and treated as an estimated payment.
It's not just one system. In addition to none of the credit card processors accepting it, IRS Direct Pay states the following (if you press the "?" next to "Reason for Payment" and expand "Estimated Tax"):
Make estimated tax payments in advance of the timely filing of your return. Depending on your income, your payment may be due quarterly, or as calculated on Form 1040-ES, Estimated Tax for Individuals. You do not have to indicate the month or quarter associated with each payment. If you want to make a late estimated tax payment after January 31st (for last year), select Balance Due as the reason for payment.
Just curious to know if you or anyone in our group tried the balance due as reason after 31st Jan.....? I am also in this tricky sitution where I have due tax ~8K and want to stop the interest by making payement via balance due? Please suggest??
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