The civil penalty provided by the Internal Revenue Code for
underpayment of federal estimated tax also applies to persons required to make
payments of estimated tax under provisions of the Iowa Code. The Iowa penalty
for underpayment of estimated tax is computed on Form IA 2210 for individual
taxpayers other than farmers and fishers and Form IA 2210F for individuals who
have two-thirds of their gross annual incomes from farming or fishing
activities.
(1)
Exceptions
which may avoid the underpayment penalty. The following are the two
exceptions under which taxpayers may avoid the penalty for underpayment of
estimated tax:
a. Current year payments equal
or exceed prior year's liability. Taxpayers may avoid the penalty for
underpayment of estimated tax if the estimated tax payments and other tax
payments for the current tax year, such as withholding tax, are equal to or
exceed the tax liability for the prior tax year. The prior tax year must cover
a 12-month period and there must have been a tax liability on the return for
the prior year. For tax years beginning on or after January 1, 1987, the
requirement that the return for the prior tax year must have had a tax
liability is eliminated although the return must have covered a 12-month
period.
b. Current year payments
equal or exceed 80 percent, or 90 percent for tax years beginning on or after
January 1, 1987, of the tax on the taxpayer's annualized income. Taxpayers may
also avoid the penalty for underpayment of estimated tax, if their tax payments
for the tax year are equal to or exceed 80 percent of the tax on the taxpayer's
annualized income for periods from the first of the tax year to the end of the
month preceding the month in which an installment of estimated tax is due. For
tax years beginning on or after January 1, 1987, taxpayers may avoid the
penalty for underpayment of estimated tax if their tax payments for the tax
year are equal to or exceed 90 percent of the tax on the taxpayer's annualized
income.
(2)
Waiver of penalty for underpayment of estimated tax. The
following are two situations under which the penalty for underpayment of
estimated tax may be waived for tax years beginning on or after January 1,
1986:
a. The underpayment was due to casualty,
disaster, or other unusual circumstances and imposition of the penalty would be
against equity and good conscience.
b. The underpayment was made by an individual
who retired after having attained age 62, or who became disabled in the tax
year for which the estimated payment was due or in the preceding tax year, and
the underpayment was due to reasonable cause and not due to willful
neglect.
This rule is intended to implement Iowa Code section
422.16.
