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:
- Am I (and H&R Block) correctly interpreting the IRS guidance?
- Is the IRS guidance wrong?
- Is there anything I can do about it? Ideally I'd like to not pay a penalty for underpayment when I have not underpaid.