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Old 03-10-2016, 12:10 AM
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A valid reason to ask for Underpayment Penalty Waiver?

I had a sizable Realized Gain event in Q3. Instead of making an Estimated Tax payment in Q3, I decided to increase the payroll deduction in Q4 to fully cover the 110% of the prior year tax before the year-end. However, in a month I lost the job and became Unemployed, and thus the tax withholding via payroll stopped. It was already too late to send the Estimated Tax for Q3. At the year-end I paid the Q4 Estimated Tax that fully covered the liability and even resulted in a refund. (And in Q1 and Q2 I was ahead of schedule with tax withholding/payments.)

Anyway, for Q3 there was an underpayment and it resulted in a penalty. I completed the form 2210 and used Annualized method that lowered the penalty somewhat (from $162 to $90).

Now, I would like to check the box B and ask for a waiver (will put in the whole penalty amount). My question is whether the above situation would be considered a valid reason to ask for a waiver, or practically IRS would likely deny it?

(I can provide copies of paychecks showing the increase in tax withholding, proving the good faith efforts. I have a letter confirming my Unemployment as of the end of September. I can attach it as a proof. Just not sure if the IRS would consider it a valid reason for a waiver...)

Also, would asking for a waiver and thus making the IRS to hand-touch the return increase the risk of an Audit?

Thank you!



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Old 03-10-2016, 11:52 PM
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I guess they deny it; You can adjust your withholding on your paycheck to cover any additional taxes from other income such capital gain;so,.increasing the payroll deduction unless you increase fed tax withheld from your paychecks, in Q4 can not fully cover the 110% of the prior year tax before the year-end; The estimated tax rate self-employed workers pay is higher than the tax-related payroll deductions that employees face. You can use extra withholding on one type of income (such as wages) to avoid paying estimated tax on another type (such as interest, dividends or capital gain). in general, the IRS may waive your penalty for underpaying estimated taxes aslongas the IRS may agree to waive your penalty if you failed to make an estimated tax payment due to a casualty, disaster, or other unusual situations. then, they may decide that it would be inequitable to impose the penalty on you, given your circumstances.
Or the IRS may agree to waive your penalty for underpayment of estimated taxes applies only if you retired after age 62 or you became disabled ;you had reasonable cause for not making the payment, and
? you did not willfully neglect to make the payment.



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Old 03-11-2016, 03:37 AM
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Thank you for the reply!

Just to clarify, I increased the Federal (and State) Tax withholding from my payroll. I calculated that by the end of the year the total Federal (and State) Tax withheld would fully cover the required 110% of the prior year tax.

But then I lost the job, the payroll stopped, and it was already too late to make the Q3 estimated tax payment... Fully covered everything in Q4, but underpayment for Q3...

You think they will deny it, does not sound as a valid reason (and good efforts)?



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Old 03-11-2016, 03:30 PM
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Quote:
Originally Posted by mikehimself View Post
Thank you for the reply!

Just to clarify, I increased the Federal (and State) Tax withholding from my payroll. I calculated that by the end of the year the total Federal (and State) Tax withheld would fully cover the required 110% of the prior year tax.

But then I lost the job, the payroll stopped, and it was already too late to make the Q3 estimated tax payment... Fully covered everything in Q4, but underpayment for Q3...

You think they will deny it, does not sound as a valid reason (and good efforts)?

Just to clarify, I increased the Federal (and State) Tax withholding from my payroll. I calculated that by the end of the year the total Federal (and State) Tax withheld would fully cover the required 110% of the prior year tax.=>>then no problem at all as you can see, If your previous year's adjusted gross income was more than $150,000 for married couples filing jointly and single taxpayers, or $75,000 for married taxpayers filing separately, and you want to base your estimated tax payment on the prior year's amount, you'll have a higher safe harbor percentage to meet.





In these cases, the IRS expects the high-earning taxpayer to pay at least 110% of his or her previous year's tax bill


But then I lost the job, the payroll stopped, and it was already too late to make the Q3 estimated tax payment... Fully covered everything in Q4, but underpayment for Q3...

You think they will deny it, does not sound as a valid reason (and good efforts)?==>> I understand what you mean needless to say final decision?ll be determined by the IRS;however, losing your job and was late was not reasonable reason UNLESS you end up owing less than $1K in April of 2016 I mean unless you might have underpaid your tax billAnd that could result in you owing added penalties and interest.



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Old 03-12-2016, 05:04 PM
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I am just trying to figure out if I should bother asking for a waiver ($90), based on the circumstances? Or they would likely deny it and I just may increase a chance of an Audit?
What would you advise, by your opinion?



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