Underpayment Tax Penalty Refunded by IRS

[Redc]

I used TurboTax Home & Business to prepare and file a 2022 return for a family member who is employed full time and has taxes withheld via W-9 and gets monthly W-2's.  Ended up with an underpayment of taxes over $8,000, and TT calculated a penalty of $239.  Decision was made to file and pay underpayment plus penalty on 03/31/2023.  Accepted and processed by IRS.

Just (04/26/2023) received notice from IRS that entire underpayment penalty will be returned, look for check in 4-6 weeks.

How it that possible?  

[Critter-3 · Accepted solution]

The program calculates an estimated underpayment penalty using the information you enter but the IRS calculates the actual underpayment penalty based on the information they have and they have the final word on this matter so it can happen that the IRS changes the return that is filed ... actually pretty common. 

[VolvoGirl]

Huh?  What do you mean he gets monthly W2s?  You get one W2 at the end of the year to report your wages.

And a W-9 is for 1099 income, not W2 income.    The penalty that Turbo Tax calculates is just an estimated amount, It's common for the IRS to adjust the penalty and send you a bill or refund.  

You can go though the underpayment form 2210 in the return and maybe see.  Be careful not to change anything in the return.  I would first save the return with another name to test in.  Go up to FILE - SAVE AS

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.  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

[Redc]

Sorry, I meant my family member gets monthly paychecks and a year-end W-2.

I'm not going to change anything as it's already filed and the penalty is being refunded in full.  I'll follow your suggestions when filing for the 2023 tax year.

I just started to question the accuracy of TT's calculations, but since you're the second response noting it's not unusual, I'm still good with the product.  Thanks for your response and corrections.

[alegtr77]

It's happened to me as well, this year and also 2 years ago. 

In both cases the entire penalty was refunded so I'm not buying the whole "recalculated penalty" theory. 

I assume the IRS chose to, or has leeway to nullify the penalty in it's entirety.