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I'm trying to file my taxes right now, and H&R Block's tax software is simultaneously telling me I'm owed a four figure refund and owe a (modest) underpayment penalty. On digging through this year's forms compared to last year's, I think I've nailed down the problem.

In 2020, the Child Tax Credit (CTC) and Child & Dependent Care Tax Credit (C&DCTC) were non-refundable, and were therefore included on form 1040 lines 19 and 20, and subtracted in the process of going from line 16's Tax on your way to line 24's Total Tax, which is what got copied to Form 2210. This meant the amount owed on Form 2210 was accurate.

In 2021, both credits became refundable, and thus moved below line 24. They should have been incorporated in line 3 of Form 2210 (being refundable now), but according to H&R Block's mini-worksheet for line 3, it's only incorporating the C&DCTC. This seems to align with the IRS instructions for line 3, which mention the "Additional child tax credit" (which no longer exists if I understand correctly, since it was a patch to fix the non-refundable CTC, which is now fully refundable), but not the CTC itself. As such, for everything but Form 2210, accounting for credits, I've significantly overpaid, but Form 2210 doesn't acknowledge the CTC I receive for my children, and thinks my net tax liability was over $7K higher than it actually was.

So my questions are:

  1. Am I (and H&R Block) correctly interpreting the IRS guidance?
  2. Is the IRS guidance wrong?
  3. Is there anything I can do about it? Ideally I'd like to not pay a penalty for underpayment when I have not underpaid.
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  • For the record, the fully-refundable, increased and half-paid-in-advance CTC was only for 2021 as a COVID-emergency measure (and mostly excluded US taxpayers not living within US+PR); the nonrefundable-CTC-and-refundable-partial-ACTC returned in 2022 and onward -- as long as there are no more emergencies.
    – dave_thompson_085
    Commented Nov 15, 2023 at 6:25

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The IRS instructions are not a legal authority. I believe the law is that if this credit is refundable then it reduces your underpayment amount and should be accounted on line 3.

Best way of action would be to follow this line in the instructions for the form 2210:

The IRS will generally figure your penalty for you and you should not file Form 2210.

Just don't file that form at all.

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  • Thanks. As it happens, I know someone who works for the IRS who will inform the appropriate group of the mistake, so with any luck the instructions will get fixed/clarified (whether H&R Block will issue an update in turn I don't know; don't know anyone there). A tax lawyer I knew informed me that the instructions don't have force of law. I just wasn't sure if I should file the form and override H&R Block to manually modify line 3, or not submit the form at all and hope a sane person at the IRS would notice I shouldn't owe anything. I'll wait the customary 24 and accept if nothing new arises.
    – ShadowRanger
    Commented Mar 10, 2022 at 2:18
  • I had that same "you owe a penalty for underpayment" using TurboTax. I checked the box to have the IRS calculate it. The calculated refund from TurboTax hit my bank account within two weeks, no adjustment for a penalty.
    – mkennedy
    Commented Mar 10, 2022 at 15:02

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