Why is Pro Series printing out a 1040-ES for a client that is getting a refund?

[gfpstaxes]

A client has $232,380 in wages, $61 in interest, $8,816 in capital gains, $3,190 in rental income and a $1,500 HSA deduction.

$217,909 taxable income, total tax is $39450 after child tax credit.

Withholding was $40,686, so they're getting a refund of $1,236.

So why does Pro-Series print out 1040-ES forms for them?

[rbynaker]

The ProSeries default is to base next year's estimates on this year's safe harbor amount.  In your case that's going to be 110% of taxes.

[qbteachmt · Accepted solution]

"that's going to be 110% of taxes"

Which your client did not meet. Tell them to increase their withholding, then; or, pay estimates.

[rbynaker]

For most of my clients in this situation we just suppress estimates.  If their income is fairly stable there's a very good chance they'll fall under one of the other underpayment exceptions (i.e. 90% of current year income).  It's ultimately their decision but I make a recommendation based on the situation and tell them that if anything changes significantly to let me know and we can do a mid-year projection.

I do have several clients with stock options/restricted stock which causes their income to vary pretty wildly from year to year and in those cases we do aim for the 110% safe estimates/increased withholding.  So really you just have to assess the situation, inform your client of the ramifications and make an appropriate recommendation.  There's not always a "one size fits all" solution.

Rick

[BobKamman]

Since airplanes now have auto-pilot, why do they need two people sitting in the cockpit?

[abctax55]

Rick, I agree.  

I explain the "logic" of the 110% (and the fact that it's a CYA move mainly) and let the client decide if they want to loan the extra money to the government or take the chance.  And with these clients, we often revisit the issue late in the year and consider adjusting withholding and/or the last estimate.  Often, annualizing is involved.

[BobKamman]

Just wondering, if the Fed does like other countries and moves to negative interest rates, would IRS have to do the same with ES penalty rates?  Could skipping payments reduce the balance due at the end of the year?  

[abctax55]

LOL... the government having to pay the taxpayer for NOT doing estimates.

Normally I'd say no way; but 2020 has proven to me that *normal* is just an illusion.