Why does Form 2210AI Part II overstate the annualized self-employment tax

[david3]

I'm completing Form 2210AI to calculate the annualized income method for a client's estimated tax penalty.

The client earned all of his $9,890 self-employed income in January and February. Therefore, I entered $9,890 self-employment income in Part II section A columns (a) - (c). Line 28 correctly calculated $9,133 for each period, after multiplying SE income by 92.35%. 

The total SE tax is $1,397. However, line 36 calculates $5,589 SE tax for the 1/1/24 - 3/31/24 period. The SE tax for the other two periods (column b and c) is also greater than the $1,397 annual SE tax. The annual SE tax column on line 36 correctly reports $1,397.

The line 36 SE tax amounts are automatically entered in Part I, line 15 SE Tax for each period. This overstates the required tax payments for the first three periods. It appears that PS is multiplying the $1,397 annual SE tax by the annualization amounts on Part II, line 2. This doesn't make sense to me. The instructions don't explain this either.

Is PS calculating F 2210AI Part I, line 15 correctly or is this a bug in the PS program?

[david3]

I should clarify that the reason I am filing Form 2210AI is because the client received an unexpected installment sale payoff of $240K in December 2024. 

The other sections of F 2210AI make sense. I only have a question about Part II that deals with the self-employment tax. 

Thank you.

[TaxGuyBill · Accepted solution]

It looks right to me.

That is what "annualized" means; it proportions it to equate to a full year.

If you look at lines 32 and 34, yes, it multiplies the 12.4% Social Security tax and 2.9% Medicare tax by 4 to equate the first quarter to the entire year.

As you said, that amount flows to line 15.  But then you need to look at line 20, where it then proportions the tax due down to the payment for that period.

[david3]

OK, I now see how it's calculating the annualized penalty. Thanks for your explanation.