How is Estimated Tax penalty calculated?

Factual Questions
1

Silly me, I believed our accountant who said we didn’t need to file quarterly witholdings with the IRS. We got dinged with a penalty.

I can’t find how the penalty is calculated. This thread has some promising links, but they only talk about the existence of the penalty and why it exists, not the math.

Did I get dinged for just the amount I should have withheld? That plus an interest rate? That plus an arbitrary penalty? If I overpay the estimated tax payments this year (very likely) I understand I will get a refund, but is there any interest added on to that?

Can anyone explain the math to me, or point me to a better resource?

2

You have to pay it if you did not pay 90% of the current year’s taxes, or 100% of the previous years, whichever is smaller. Those go up by 10% if you have a very high income. Even then you only have to pay if you currently owe >$1000. Depending on the circumstances, it may have been impossible for an accountant to estimate a penalty if your situation changed over the year.

The math is a little tricky, but depends on when you pay it. It’s a fraction of the amount you owe, there doesn’t seem to be any fixed amount.

It’s April 2, now isn’t it? Just checking, no they do not pay interest, just like they don’t pay for withholding, only if they send your refund excessively late.

You can also request that the IRS compute the penalty for you (there may not be one).

Instructions here: Instructions for Form 2210 (2022) | Internal Revenue Service

3

Thanks! Looks like delving into that form will reveal all details.

4

Coincidentally, I downloaded one today. The form itself is 4 pages long. I haven’t read it yet as I have to cover the Board first. The blurb about it in my 1040A book says it’s very complicated. Last year (for 2006) I knew *nada * about the penalty or that it would be levied if I had to pay more than $1,000 on 4/15. I paid them $3800 on 4/15 and had to pay a penalty of about $113, IIRC when they billed me in August…

You do not have to do the calculation and pay it when you file on 4/15. Again this year, for 2007, I did not have any w/h from my SS payment so have to pay more than $1,000 again, about $3k, so will be levied a penalty. I guess a small part of that would be interest on the penalty.

I will read the 2210 instructions but I think I’ll just leave that line blank and let the IRS do the calculation and bill me again, and keep the $100 or so until then.

I have changed my w/h on my SS acount so will not have to cough up more than $1k on 4/15/09. Where is the Fair Tax when we really need it?