Penalty/Interest

[Feiler51]

I have not received my Federal refund after 2 months. I was checking my hard copy of my filed taxes and noticed Penalty/Interest $42. Why? I thought the deadline to file was given until 5/17/21 due to Covid. My Federal return was accepted on 5/16/21. I had paid my quarterly taxes and am due to receive a sizable refund. Any idea what the $42 Penalty/Interest was for? And I find it unusual that I have not received my refund yet. In all the years I have used Turbo Tax, I have always received my refund within 2 weeks.

[Critter-3]

If you mean line 38 on the form 1040 that is an estimated under withholding penalty  which can still be assessed even if you have a refund on the return.   Look at lines 34 & 35a ... the difference should be line 38. 

[Feiler51]

Thank you for your reply. That's exactly what it is. It's news to me that you can be penalized even though my refund is close to $4,000. I obviously paid enough to cover what I owed. It's only $42, but I'm in shock that I would be penalized when I paid all that I owe. Live and learn I guess.

[Critter-3]

The IRS will not allow you to wait to pay your taxes on the last day of filing or late in the year ... it  is a "pay as you go" system and that is how penalties are accrued.   If your income was earned unevenly during the year and the program says you owe a penalty then you can use the annualized method to reduce or negate the penalty ... for $42 it is probably not worth the effort especially if you did not keep excellent and detailed quarterly records. 

[Feiler51]

We did not wait until the last day to pay our taxes, just to file them. We are retirees and pay our taxes quarterly. We keep detailed records of everything, never claiming anything we can't prove. We have never had this happen before. I'll be on the lookout in the future. Thank you for your help.

[fanfare]

@Feiler51 

live and learn, indeed.

Your income must have gone up and the quarterly payments you were making were insufficient.

Review Form 2210 instructions to find out how much to pay to avoid this penalty.

[VolvoGirl]

The IRS May refigure it and add it to your refund or send a separate payment.

If you do not pay enough tax, you may have to pay a penalty for underpayment of estimated tax. Even if you are getting a refund you can still owe a penalty for not paying in evenly during the year.  Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. It is included in your tax due or reduces your refund.

You might be able to eliminate it or at least reduce it.  You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you.  It's form 2210.

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

[Critter-3]

Remember that you can always use the safe harbor method to pay estimated payments to avoid the penalty.

What are estimated taxes?

https://ttlc.intuit.com/replies/3301588

Do I need to make estimated tax payments to the IRS?

https://ttlc.intuit.com/replies/3301891

[Feiler51]

FYI, in fact, our income dropped by $30,000, due to COVID, retirees did not have to take their RMD. Hence the large refund. 

[E]

I have the exact same situation like yours. But, I still don't understand the logic behind this tax code. I paid estimated tax each quarter, in addition to tax withheld from monthly. The net is that I paid more than I "should", yet still penalized by IRS??? It doesn't make sense at all. 

[fanfare]

The Tax Code is not logical.

You won't pay a penalty if your withholding plus estimates this year are

at least or greater than (plus or minus some fraction based on your income) your "tax due" last year.