Why am I being charged an underpayment penalty? I have already paid 110% of the prior year's total tax liability, so I thought that avoided the penalty.

Forum|Forum|1 year ago
March 31, 2025
2 replies
4 views

I understand why I owe taxes, but I don't understand why the safe harbor provision doesn't apply for the underpayment penalty. From the IRS website: "You may avoid the Underpayment of Estimated Tax by Individuals Penalty if: Your filed tax return shows you owe less than $1,000 or You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less. If your adjusted gross income (AGI) for 2023 was more than $150,000 ($75,000 if your filing status for 2024 is married filing separately), substitute 110% for 100%." I've already paid >110% of the tax shown on my 2023 return, so I thought that would avoid the penalty. What am I missing?

rjs

Level 15

How did you pay the tax? If you made estimated tax payments, it might be that you paid too late in the year. You can't just make a big payment of 110% of last year's tax in December. You have to basically pay it evenly over four quarters.

baldietax

Level 12

you should have a Form 2210 which shows how the penalty was calculated by quarter. On TT desktop in Forms mode it may not be visible, double-click the penalty on Form 1040 then double-click it again in the worksheet and it will display Form 2210. Not sure equivalent in TT online but you should be able to generate PDF with "all forms and worksheets".