Letter from IRS

[GoodAmerican]

I received a letter today form the IRS that states I have been charged a penality for failing to pay estimated taxes. I paid my taxes before the deadline and used turbotax. The letter also states "we reviewed your estimated tax penality computation for the tax period ended 2022, and found an error. Our correction of this error increased the penality to $171.17."  Does anyone know what this means and what I have to do?

[VolvoGirl]

Did you have a penalty on line 38?   it's not for filing or paying late.  It doesn't have to do with last year's tax return or not paying estimates for this year.  The penalty is an "estimated" amount.    It's a penalty if you owe too much or for not paying in enough withholding during the year or not paying in evenly.  It's common for the IRS to adjust the amount of penalty.  

[Mike9241]

to avoid understimated tax penalty the total of your timely estimated tax payments and withholding (IRS assumes 25% of total for each period) must meet one of these criteria.

1) 90% of 2022 tax or

2) 100% of 2021 tax. its 110% if your 2021 adjusted gross  income was $150K or more

doesn't the notice show the calculation? you'll have to compare it to the Turbotax 2210 to see where the difference lies.  

[GoodAmerican]

There is nothing for line 38 on my 1040.

[GoodAmerican]

This sounds like I have to pay the amount?

[Critter-3 · Accepted solution]

The IRS wants you to pay your taxes throughout the year (hense quarterly estimated payments are expected if you don't have enough withholding)  and not just at the end of the year on the return.  The program may have computed and added an estimated underpayment penalty using the information you entered in the program   but the IRS/state have the right to calculate the penalty based off the information they have on file.  The program did not make an ERROR dispite what the IRS letter mentions but the IRS did adjust the penalty and probably added some interest.   That is "what it means"  and all you can do is pay the bill as directed on the notice.

[VolvoGirl]

Strange Turbo Tax didn't calculate a penalty on 1040 line 38.  

[Critter-3]

Unless the calculation is overridden by the user the program will and does calculate an estimated penalty based on the info the user entered however the fed/state have the right to calculate the penalty based off the info they have on file  and adjust the amount reported either up or down and bill you for the balance due or refund any excess paid.  I have seen it both ways.  For instance the program calculates the penalty based off the date of payment being 4/18  however if you pay the balance due 2/1 then the penalty was too high and the IRS sends a refund.  Same thing in reverse ... say the taxpayer says they paid  all of the annual estimates in June of 2022 but they really didn't pay until Dec of 2022 then the program's calcuated penalty would be too low.