Extension return late payment penalty

[AccTaxMan]

Another brain dead moment...I guess I am getting old.

Taxpayer has filed an extension before 4/15 for his 2012 tax return.

Now the 2012 tax return is complete, there is a balance due of $2,500.

But the tax withholding on his 2012 W-2 is more that his 2011 total tax liability.

So there will be no late payment penalty.

Am I correct?

[appelman]

No, you're not.

The safe haven protects you against underwithholding/underestimate penalties up to the original due date. The extension is an extension of time to file, not an extension of time to pay.

Another brain dead moment...I guess I am getting old.

Taxpayer has filed an extension before 4/15 for his 2012 tax return.

Now the 2012 tax return is complete, there is a balance due of $2,500.

But the tax withholding on his 2012 W-2 is more that his 2011 total tax liability.

So there will be no late payment penalty.

Am I correct?

[AccTaxMan]

The safe haven protects you against underwithholding/underestimate penalties up to the original due date. The extension is an extension of time to file, not an extension of time to pay.

Thank you Appleman.

But based on the flowchart on Form 2210, line 6 is the current year (2012) withholding taxes. Line 9 is the smaller of line 5 or line 8, which is the prior year (2011) tax liability in this case. And the flow chart also says if line 6 is greater than line 9, "you do not owe a penalty. Do not file Form 2210". If we apply this rule to the case that I mentioned in the original post and if I have interpreted what it says correctly, I believe there is no penalty.

So does the flowchart only apply to tax returns that have been filed before April 15th?

[David1980]

Form 2210 is used to calculate the underpayment of estimated tax penalty. It is not used to calculate the late payment penalty. Different penalties.

[S T]

Two "different" penalties

form 2210 is the underpayment penalty for not paying in estimated taxes - 1040 ES or throughout the year via withholding. It seems based on your post client does not owe an underpayment penalty - Form 2210

Appleman is correct, if there was an amount due with tax return of $ 2,500, it was due 4/15/2013 with the extension form. If not paid by 4/15/2013, then there will be a late payment penalty on the $ 2,500 until paid

Sandy

[FEDUKE404]

Said another way

Your client could have avoided any and all "penalties" by paying the $2,500 (or more) by 04/15/2013, assuming the facts as stated re the Form 2210/Exception 1 are correct.

The underpayment penalty exception still applies.

But the late payment penalty/interest for NOT paying all balances due by that date continues to tick along.

QUESTION: I'm somewhat curious how/why there was no payment made with the filing extension. The instructions ( http://www.irs.gov/pub/irs-prior/f4868--2012.pdf ) are pretty clear, see the "Caution" box, as to what happens if you do not pay the calculated amount due by April 15th. ("Form 4868 does not extend the time to pay taxes. If you do not pay the amount due by the regular due date, you will owe interest. You may also be charged penalties.") From OP it appears the client made that error, otherwise you might be on the hook for the interest/penalty costs.


FE

[AccTaxMan]

Thank you everyone for the clarification.

I found Form 1040 has a line 77 for "estimated tax penalty". I do not see another line for the late payment penalty. So does the late payment penalty go to line 77 too?

[FEDUKE404]

Reporting penalty and interest on Form 1040

Thank you everyone for the clarification.

I found Form 1040 has a line 77 for "estimated tax penalty". I do not see another line for the late payment penalty. So does the late payment penalty go to line 77 too?

Your client (apparently) does NOT have an estimated tax penalty, hence nothing goes on line 77.

You should refer to page 95, columns 2 and 3, of the Form 1040 instructions ( http://www.irs.gov/pub/irs-pdf/i1040.pdf ) for relevant instructions. Since the calculations of interest/penalty can be complex, I probably would just let the IRS send a bill.

FE

[David1980]

Thank you everyone for the clarification.

I found Form 1040 has a line 77 for "estimated tax penalty". I do not see another line for the late payment penalty. So does the late payment penalty go to line 77 too?

No, there's no line on the 1040 for it. Just like there's no line for the failure to file penalty. After 4/15 I normally advise to just pay the amount due and let the IRS bill the penalties. Too many variables that the odds of getting it 100% right isn't likely anyway. I'd rather they get a bill for the correct amount than I tell them the penalty is $XX and they then get a bill or credit for a few bucks because I was "wrong".

[JON]

Penalties

for payments after 4/15 - late payment and interest happen if you are not 90% paid in on 4/15.. Software will put the amounts, in my case on the bottom of page 2. I think several years ago the taxing authorities started getting really good at catching and sending out notices of payments due.

[FEDUKE404]

Not quite

for payments after 4/15 - late payment and interest happen if you are not 90% paid in on 4/15.. Software will put the amounts, in my case on the bottom of page 2. I think several years ago the taxing authorities started getting really good at catching and sending out notices of payments due.

Actually, I think late payment and interest happen if you are not 100% paid in on 4/15.

As has been noted above, the underpayment penalty is a separate issue from the late payment penalty.

The 90% issue applies only to the Form 2210 underpayment penalty concerns.

Bottom line: Regardless of how much (%) you have paid in prior to April 15th, any balance due owed that was not paid by April 15th will be subject to a late payment penalty. You may have paid in 99% of your taxes by April 15th, but if your final (extended) return shows a balance due you are still subject to a late payment penalty on the remaining 1%.

"Extension of filing does not constitute an extension of payment."

FE

[JohnH]

Agree with the majority on this one. There will be a FTP penalty plus interest due from 4/15/13. The sum of the two will be a little less than 1% per month - nothing to be concerned about. I'd tell the client to pay the balance due and wait for the bill from IRS, which will arrive in about 3-6 weeks and will likely be around $120 - $150. The balance due is peanuts in relation to the tax liablity and the importance of getting the return right - well worth the cost IMO. No need to strain at gnats on this one.

If the client happens to ask you to pay the P&I, tell him it isn't going to happen. (Unless there are extenuating circumstances.) If he complains, tell him he can avoid the P&I by getting his info to you on time.