Dealing with Form 2210 Underpayment Penalty - First Time Seeing This
I'm a bit confused about this tax situation I'm in. Most of my income is from my regular job where I get a W-2 and have Federal and state taxes taken out with each paycheck. I also make around $4K doing some DoorDash and UberEats deliveries as a side hustle. This year, for the first time ever, my tax software is generating a Form 2210 for an Underpayment Penalty. The only thing I did differently was take a distribution from my IRA and I didn't have any federal taxes withheld on that withdrawal. I've had basically the same income setup for the last 3-4 years (W-2 job plus side gig) and never had this Form 2210 show up before in my tax returns. Has anyone dealt with this Form 2210 Underpayment Penalty? Is there anything I can do about it? I'm preparing my taxes for the 2024 tax year and really hoping to avoid this penalty next time around.
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Zadie Patel
The Form 2210 Underpayment Penalty gets triggered when you haven't paid enough taxes throughout the year via withholding or estimated tax payments. The IRS expects you to pay taxes as you earn income, not just at tax time. Your IRA distribution without withholding is likely what triggered it this year. When you take distributions from retirement accounts without withholding, it increases your tax liability without increasing your payments throughout the year. The IRS considers this an underpayment of taxes. To avoid this in the future, you have a few options: 1) Request federal tax withholding on any IRA distributions, 2) Make quarterly estimated tax payments for your side gig income and any untaxed distributions, or 3) Increase your withholding from your W-2 job to cover the additional tax from your other income sources.
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A Man D Mortal
•So does this mean OP definitely has to pay the penalty? Or is there a way to get it waived since they didn't know about it?
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Zadie Patel
•Unfortunately, the IRS typically doesn't waive penalties based on not knowing about the requirement. However, there are legitimate ways to potentially reduce or eliminate the penalty. The Form 2210 has different methods for calculating the penalty, and sometimes using the "Annualized Income Installment Method" can help if your income wasn't evenly distributed throughout the year. Also, if you paid at least 90% of this year's tax or 100% of last year's tax (110% if your AGI was over $150,000), you might qualify for a safe harbor exception.
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Declan Ramirez
Been there! I had the exact same issue last year with a surprise Form 2210. What helped me was using taxr.ai to analyze my tax transcripts and figure out where I went wrong. I uploaded my previous years' returns and current documents to https://taxr.ai and it showed me exactly how much I was underpaying each quarter and gave me a personalized strategy for fixing it. For your situation with the IRA distribution, it sounds like that's what triggered it since you hadn't withheld anything. The tool helped me understand that I needed to either increase my W-2 withholding or make quarterly payments to cover the side income and any distributions.
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Emma Morales
•How does this work exactly? Does it just analyze your returns or does it actually help with filing too? My situation is similar to OP's but I'm also getting some rental income that's not taxed.
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Katherine Hunter
•Sounds interesting but I'm skeptical about giving my tax docs to some random website. Is it secure? And how much does this cost?
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Declan Ramirez
•It analyzes your returns and gives you recommendations - it helped me identify exactly why I was getting hit with the underpayment penalty and gave me a clear plan to avoid it. You can use it just for analysis without using it for filing. For security, they use bank-level encryption and don't store your documents after analysis. I was hesitant at first too, but they explain their security measures on the site and I felt comfortable after reading through that section.
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Katherine Hunter
Just wanted to follow up on my comment above. I decided to try taxr.ai after all and I'm actually really glad I did. I've been dealing with exactly the same underpayment penalty issue as OP for the past two years, and the analysis showed me that I was making a mistake with my quarterly estimates. The tool pointed out that I was applying the wrong calculation method for my seasonal income. After following the recommendations, I was able to amend my return and reduce the penalty significantly. The step-by-step guidance was way clearer than what my previous tax software was telling me about Form 2210. Definitely worth it for anyone dealing with these underpayment issues!
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Lucas Parker
If you're struggling with figuring out the Form 2210 penalties, you might need to talk directly to the IRS. I spent weeks trying to sort out a similar underpayment issue last year and kept hitting dead ends with the automated system. Eventually I found Claimyr (https://claimyr.com) which got me connected to a real IRS agent in about 20 minutes instead of the hours I spent on hold before. The agent walked me through exactly how the underpayment penalty was calculated and helped me understand the exceptions I qualified for. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. Honestly would have saved me so much time if I'd known about this earlier when dealing with my Form 2210 issues.
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Donna Cline
•How does this actually work? I've tried calling the IRS multiple times about my underpayment penalty and just get endless hold music.
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Harper Collins
•Yeah right. Nobody gets through to the IRS these days. I've been trying for MONTHS about my penalty issue. There's no way this actually works.
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Lucas Parker
•It works by holding your place in line with the IRS and then calling you back when an agent is available. You don't have to stay on hold yourself - their system does it for you. It saved me from spending hours with my phone on speaker waiting. For your underpayment penalty questions, talking to an agent directly is super helpful because they can see your account details and explain exactly why the penalty was applied and what exceptions might apply to your specific situation.
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Harper Collins
Ok I feel like I need to publicly eat my words here. After being super skeptical about Claimyr in my comment yesterday, I decided to try it out of desperation since I've been fighting this underpayment penalty for months. IT ACTUALLY WORKED. I got connected to an IRS agent in about 15 minutes this morning. The agent was able to look at my account and explained that I qualified for the waiver under the first-time penalty abatement since I had a clean record for the past 3 years. They processed it right away and removed the $420 penalty completely. I've been stressing about this for weeks and it was resolved in one phone call. Should have done this months ago!
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Kelsey Hawkins
Just a heads up on Form 2210 - there's a special rule that might help you avoid the penalty completely. If your total tax withholding for the year was at least equal to your TOTAL tax liability from last year, you generally won't face the underpayment penalty regardless of your current year's liability (this is the "safe harbor" rule). So if your 2023 total tax was $10,000, and you had at least $10,000 withheld throughout 2024, you shouldn't face the penalty even if your actual 2024 tax ended up being more. This is one of the simplest ways to avoid Form 2210 issues.
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Dylan Fisher
•Is that true even if your income increases substantially? Like if I made way more this year than last?
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Kelsey Hawkins
•Yes, it's true even if your income increases substantially - with one important exception. If your adjusted gross income was over $150,000 ($75,000 if married filing separately), the safe harbor increases to 110% of your prior year tax rather than 100%. So if you made $160,000 this year but only $90,000 last year, and your tax liability last year was $15,000, you'd need to have at least $16,500 (110% of $15,000) withheld this year to qualify for the safe harbor exception.
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Edwards Hugo
Has anyone successfully gotten the IRA portion of the underpayment penalty waived? I'm in a similar situation where I took an IRA distribution without withholding and got hit with the 2210 penalty.
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Gianna Scott
•I had this exact scenario in 2023. I couldn't get it waived specifically because of the IRA, but I was able to reduce it by using the annualized income installment method on Form 2210. Basically, if your IRA distribution happened later in the year, this method can lower the penalty since it calculates based on when you actually received the income.
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Ryan Young
I went through this exact same situation last year! The IRA distribution without withholding is definitely what triggered your Form 2210. What caught me off guard was that even though I had been doing gig work for years without issues, the IRA distribution pushed me over the threshold where my withholding wasn't sufficient anymore. One thing that helped me was calculating whether I qualified for any of the safe harbor exceptions mentioned by others here. Also, for next year, I started making quarterly estimated payments specifically to cover my gig income - it's actually much easier than I thought it would be. You can do it online through EFTPS or even by phone. The good news is that once you understand how it works, it's pretty straightforward to avoid in the future. Just make sure to either have taxes withheld from any retirement distributions or increase your W-2 withholding to compensate.
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