Additional interest and penalty if taxes paid by May 17th?

[ANDYB]

My tax software calculates the late payment interest/penalty on taxes due using the 4/15/2021 date for payment. If I e-file the return on 4/15 but direct debit the taxes on 5/17, will my clients get a notice for additional penalties/Interest for the extra month?

[ATSMAN]

What tax software still calculates penalty from of 4/15? Can you override or shut off that calculation.

IRS will NOT bother your client as long as the ACH Debit is indicated on 5/17 on the tax return. If they are late in debiting it, not to worry.

[ANDYB]

Thanks. My tax software is Drake. Even though I have the direct debit indicated as 5/17, the 2210 worksheet for the penalty still calculates the penalty only up to 4/15. I can't see a method to override it but I believe the IRS will not charge additional penalties beyond 4/15 if paid by 5/17 - that is what I am trying to verify. thanks again.

[Rapid Robert]

Your initial post made me think you were talking about the FTP (failure to pay) penalty, which applies when payment of balance due for the current tax year is not made by the original due date. That date is now May 17, for TY2020.

Form 2210 is something else. That is used to calculate underpayment of ESTIMATED tax, which was due DURING the tax year (pay as you go). It is calculated as interest only, there is no extra "penalty" involved beyond the interest charge. Normally, if the client has not paid sufficent estimated tax by Jan 15 (due date of the Q4 estimated tax payment), the Form 2210 interest will continue until the due date of the return or the payment is made, whichever comes first. I'm not sure how that is being treated this year, I vaguely recall that last year the underpayment of estimated tax interest clock stopped on 4/15 even though the due date was extended to 7.15.2020. Sounds like that is what your software is assuming, it's probably a somewhat safe assumption.

Worst case, your client will have to pay interest of 0.25% (0.0025) for one month on the balance due (from 4/15 to 5/17). That almost certainly won't be much. You don't actually have to file the Form 2210, you can let the IRS calculate it for you although they won't use the annualized method, if that makes a big difference.

[ANDYB]

Thanks Rapid Robert. Yes I have used the annualized method to reduce the interest so I am generating the 2210. I am assuming no additional interest beyond 4/15 when filing the returns even if payment is on 5/17 - I'm just wondering if any have seen anything definitive from the IRS regarding this. I am trying to avoid clients receiving notices from the IRS when doing this as most have heard and are assuming they have until 5/17 to pay.

[Rapid Robert]

. I am trying to avoid clients receiving notices from the IRS when doing this as most have heard and are assuming they have until 5/17 to pay.

Anecdote: back when I was working for the big green square tax chain, I had a client who according to Form 2210 would owe about $60. But the my employer's system would force me to charge that client something like $35 for preparing that form, which I did not want to charge them, so I left the form out of the tax return, but had the client pay the extra $60 anyway, figuring it would all wash out with the IRS. Result: some months later, the IRS mailed my client a check for $60. Point being, there is some unpublished dollar amount below which the IRS doesn't bother to assess Form 2210 underpayment charge.

[ANDYB]

Thanks again. Certainly food for thought here....