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anyone else under withheld? - 2/2/2010 12:50:53 PM
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davelinde
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From: New Jersey
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We have always been very good at adjusting our withholding accurately to avoid big refunds or big payments. This year we did not really look at it closely because we did not change the number of deductions and I made about the same (maybe a little more) than the prior year. Should be good?
Well... DW just did a preliminary calculation and not only do we owe a bunch of tax - we were under withheld and are subject to penalty. So, then shame on us for not checking while we had time to make a supplemental payment?
BUT... some time last year (in an act of idiocy economics?) the Feds CHANGED my withholding and began to take less!! Now, because THEY changed it... they want to penalize ME? We found a rule that says that IF we are under paid because of the change they will waive the penalty -- but it does not say how they decide it was their fault? It looks like we submit an extra form and blame them, then they will tell us if they want us to pay the penalty or not...
Am I the only one who got burned by this slight of hand tax trick?
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RE: anyone else under withheld? - 2/2/2010 1:08:59 PM
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Miss Giggles
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It was the "Making Work Pay credit". Yes the government adjusted your witholding in the middle of the year. Yeay for me I overwitheld and got a refund.
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RE: anyone else under withheld? - 2/2/2010 1:57:35 PM
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GroupW
Posts: 2958
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From: Up in the hills of Colorado (very BIG hills...)
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Dave-
I think you most likely will fall into the safe harbor provisions for underwithholding. I don't think you'll owe a penalty (though you will owe the increase in tax.) A couple of years back, I was underwithheld by $7,000 but paid no penalties due to the safe harbor provisions.
Beware though - if you do your taxes using TurboTax, I have read that the software in some cases can tell you that you owe a penalty when in fact you don't.
Happy tax filing season!
BT
Edit: Check out the IRS publications list for the rules on the safe harbor. They're not all that complex, but I'd trust the IRS publication over TurboTax on this issue.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: anyone else under withheld? - 2/2/2010 2:05:25 PM
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GroupW
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From: Up in the hills of Colorado (very BIG hills...)
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FYI - from IRS form 505 for 2008 (don't think the safe harbor rules have changed, so this should be close)
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Generally, you will not have to pay a penalty for 2008 if any of the following situations apply.
The total of your withholding and estimated tax payments was at least as much as your 2007 tax (or 110% of your 2007 tax if your adjusted gross income (AGI) was more than $150,000, $75,000 if your 2008 filing status is married filing separately), and you paid all required estimated tax payments on time.
The tax balance due on your return is no more than 10% of your total 2008 tax, and you paid all required estimated tax payments on time.
Your total 2008 tax (defined on page 55) minus your withholding is less than $1,000.
You did not have a tax liability for 2007.
You did not have any withholding taxes and your current year tax less any household employment taxes is less than $1,000.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: anyone else under withheld? - 2/2/2010 2:06:06 PM
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Mollymouser
Posts: 5910
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From: california, land of the happy cows
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WWW.IRS.GOV (Topic on Underwithholding)
Topic 306 - Penalty for Underpayment of Estimated Tax
The United States income tax is a pay-as-you-go tax, which means that tax must be paid as you earn or receive your income during the year. You can either do this through withholding or by making estimated tax payments. If you do not pay enough tax, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. There are special rules for farmers and fishermen. Please refer to Publication 505, Tax Withholding and Estimated Tax, for additional information.
Generally, the payments should be made in four equal amounts to avoid a penalty. However, if you made unequal payments because your income was received unevenly during the year, you may be able to avoid or lower the penalty by annualizing your income. Use Form 2210 (PDF), Underpayment of Estimated Tax by Individuals, Estates, and Trusts, to see if you owe a penalty for underpaying your estimated tax.
The penalty may be waived if:
The failure to make estimated payments was caused by a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty, or
You retired (after reaching age 62) or became disabled during the tax year for which estimated payments were required to be made or in the preceding tax year, and the underpayment was due to reasonable cause and not willful neglect.
Please refer to the Form 1040 Instructions or the Form 1040A Instructions for where to report the estimated tax penalty on your return.
_____________________________
 MARRIED TO A MILITARY PILOT  PLEASE PRAY FOR OUR TROOPS!
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RE: anyone else under withheld? - 2/2/2010 2:37:28 PM
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davelinde
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From: New Jersey
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quote:
ORIGINAL: GroupW
Edit: Check out the IRS publications list for the rules on the safe harbor. They're not all that complex, but I'd trust the IRS publication over TurboTax on this issue.
yep - DW said there's an added item for the safe harbor in the IRS docs. Basically that we're safe if the reason is the withholding change. There's a form and a box for that. We intend to check it.
I'm just not sure how they will evaluate my situation, no choice but to file and find out though.
I still think it was a stupid thing to change. I suppose if most people are over withheld the adjustment forced them to be properly withheld. For us (properly withheld) this forced us into being under withheld...
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RE: anyone else under withheld? - 2/2/2010 2:42:24 PM
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GroupW
Posts: 2958
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It does mess with one's planning, doesn't it.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: anyone else under withheld? - 2/2/2010 3:20:09 PM
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davelinde
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From: New Jersey
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quote:
ORIGINAL: LoyalGypsy
quote:
(in an act of idiocy economics?) the Feds CHANGED
But who is the actual idiot?
So the possible relief is documented at IRS.GOV
The whole idea (still in place for 2010) is just plain silly though... change the tax estimation to withhold less nets me nothing and now (I know.. shame on me for not checking) I could end up with a penalty.
As I said - I was PROPERLY withheld until this "making work pay" thing kicked in. (and yes, we will adjust it back out for 2010)
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RE: anyone else under withheld? - 2/2/2010 3:31:35 PM
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clydewolf
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Davelinde,
I agree, witht the other posters about the withholding, and the safe harbors. And if you had an amount withheld that was equal to your tax for 2008, you are in a safe harbor. That will save you the penalty.
I do not know how your DW estimated your tax. There is a new form this year, Form M (Make Work Pay) that figures your make work pay tax credit. For MFJ, that credit can be as much as $800 and will be reported on your 1040 line 63 in the payments area of the 1040. That will lower your tax bill by the amount of your MWP tax credit.
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RE: anyone else under withheld? - 2/2/2010 4:16:46 PM
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davelinde
Posts: 1010
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From: New Jersey
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quote:
ORIGINAL: clydewolf
And if you had an amount withheld that was equal to your tax for 2008, you are in a safe harbor. That will save you the penalty.
See that's the rub... if they had not messed with the withholding we would have met that criteria - they changed it, now we fail to meet the criteria. There were a few other things that changed too... which means that will pay more tax. Some of it was a surprise (eg the amount of taxable income generated by some "tax free" investments) and some of it we knew about (losing some deductions)...
So as I continue to gripe here... - I guess I conclude that we made some tax planning errors and may pay a penalty... at the end of the day it is our responsibility to keep up with tax code changes as they happen... Hopefully, as the web site says, we "may qualify for special relief on a penalty". Just wondering if anyone knows what criteria they'll use to qualify me?
on edit: Just went through Form 2210 instructions it's clear I can claim my problem is their fault... it's just not at all clear how much (if not all) of the penalty I an ask them to waive and what criteria they will use to determine if I'm right or not. Glad DW likes to study these things... she'll figure it out eventually I hope.
< Message edited by davelinde -- 2/2/2010 4:25:05 PM >
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RE: anyone else under withheld? - 2/2/2010 4:31:17 PM
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GroupW
Posts: 2958
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From: Up in the hills of Colorado (very BIG hills...)
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I still suspect you're ok. You'll be requesting a waiver on Form 2210. The instructions for form 2210 give the criteria for the waiver:
If you have an underpayment, all or part of the penalty for that Complete lines 1 through 9 to figure your required annual
underpayment will be waived if the IRS determines that:
-In 2008 or 2009, you retired after reaching age 62 or became disabled,
-The underpayment was due to a casualty, disaster, or other unusual circumstance, and it would be inequitable to impose
the penalty. For federally declared disaster areas, see the Exception.
-The underpayment was caused by adjustments made to amounts shown on the joint return to figure your underpayment.
income tax withholding tables that took effect in spring 2009.
Edit: just saw your edit....
I'd go for a 100% waiver and let them do the math.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: anyone else under withheld? - 2/2/2010 8:35:48 PM
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clydewolf
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Yes, go for 100% waiver. Do not send any penalty amount with your tax return. Let the IRS send you a bill.
I believe 100% of the penalty will be waived.
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RE: anyone else under withheld? - 2/3/2010 10:36:35 AM
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davelinde
Posts: 1010
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From: New Jersey
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quote:
ORIGINAL: clydewolf
I do not know how your DW estimated your tax. There is a new form this year, Form M (Make Work Pay) that figures your make work pay tax credit. For MFJ, that credit can be as much as $800 and will be reported on your 1040 line 63 in the payments area of the 1040. That will lower your tax bill by the amount of your MWP tax credit.
Clyde wins the award for pointing out exactly what happened.
DW did a tax estimate using Excel and did not know about the $800 credit. Without factoring in the credit we had something like a $2,000 tax bill (in years past we've always managed to tune withholding to keep the bill at essentially zero). Last night DW downloaded TurboTax and did a real preliminary return and found the $800 credit. We are OK now...
Thanks all for letting me gripe!
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RE: anyone else under withheld? - 2/3/2010 1:04:29 PM
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GroupW
Posts: 2958
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Does that mean you're buying lunch?
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: anyone else under withheld? - 2/7/2010 8:06:12 AM
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ticia
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Most of you are going to hate me for this suggestion...but why don't you pay a little bit of extra money and go to tax professional? Point blank, you may not owe any less, but there is a chance that you have been missing something for the year that could get you a credit. Disclosure: I work in a CPA office and have been doing taxes for the past ten years. No I can not give tax advice because I don't know everything about your situation. I also hesitate to give advice without more information because I can be held personally liable if I give you the wrong recommendation...so it's a lot better if instead of posting your question on the internet if you take the time to go to a professional and have them do your return. Depending on where you live in the country will depend on how much extra you have to pay. Would you pay a mechanic to work on your car (this is assuming that you are not a mechanic) or would you do it yourself? Would you give yourself a family member a surgery (unless you are a surgeon) or would you have the surgeon do it for you? It's the samething with getting your taxes done. I don't expect you to understand the nuances of the tax law. And if you had been using one to begin with they would have most likely called you and warned you about the decrease in withholding so that you would have been aware.
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RE: anyone else under withheld? - 2/8/2010 8:32:38 PM
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clydewolf
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Some time ago Kiplingers Personal Finance Magazine created a family scienario and handed this out to 4 CPAs across the country. Guess what, they received 4 different answers!
We have Congress to thank for the complexity of our income tax system.
It should be easier than it is today.
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RE: anyone else under withheld? - 2/8/2010 8:53:52 PM
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davelinde
Posts: 1010
Joined: 5/5/2006
From: New Jersey
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quote:
ORIGINAL: ticia
...why don't you pay a little bit of extra money and go to tax professional?
Would you pay a mechanic to work on your car (this is assuming that you are not a mechanic) or would you do it yourself?
...if you had been using one to begin with they would have most likely called you
DW is a CPA -- she never did tax though, but she is more than competent to understand it (as am I, though I'm an engineer not a CPA). In years past our tax return has had some complex stuff and DW has hit up her friends who do tax for a few targeted answers. We have never just given up and paid someone to file for us. Recently our returns have been about as simple as it gets.
I am not a mechanic but I do most maintenance on my car myself and will attempt some repairs. I am not a plumber, carpenter, or electrician but I do all that work on my own home.
No, I don't do surgery - so yes, I would draw a line somewhere. But not at filling out tax forms.
Yes, if we had our own tax person we should have gotten a call about this. But actually (and DW was kicking herself when she thought there would be a penalty) DW has checked this most years, she just forgot this year.
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