Surprise Underpayment penalty

2 replies
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For my 2021 taxes, done with Turbo, I paid the full federal and state taxes that were due as computed at filing.

I paid the 4 computed Estimated taxes for Fed and State through 2022-23.

As I do my 2022 taxes, with Turbo, I got a note that I have to pay an underpayment (<$100) penalty for 2022!

I don't understand!!!

AmyC

Alumni - Intuit

Estimated taxes are based on your predictions. My guess would be you crossed the income line or simply made more than expected.

Generally, to avoid a penalty, you should pay a. 90% of the tax to be shown on your 2022 tax return, or b. 100% of the tax shown on your 2021 tax return.

IRS Pub 505 states:

Higher Income Taxpayers If your AGI for 2022 was more than $150,000 ($75,000 if your filing status for 2023 is married filing a separate return), substitute 110% for 100% in (2b) under General Rule, earlier. For 2022, AGI is the amount shown on Form 1040 or 1040-SR, line 11.

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Mike9241

Level 15

in 2021 for 2022 estimates did you choose 90% of 2022 taxes? that's a crapshoot. because you have to be almost dead-on with income and withholding for 2022. TurboTax uses 2021 numbers to calculate the estimates unless you provide different numbers. too much income and/or too little withholding in 2022 and you don't meet the 90% test. there is a safe harbor for 2023. withholding and timely estimates payments equal 100% of your 2022 tax (you select this in Turbotax estimates) or 110% of your 2022 tax if your 2022 adjusted d gross income, line 11 of the 1040, is over $150K. this is the foolproof method because if you comply with this method and you end up owing $1,000,000 - you won the lottery. there are no penalties for underestimating.

Mike9241