Clarification Needed Regarding Penalties for Estimated Taxes

[madj2025]

I keep hearing language around a "late payment penalty" or a "underpayment penalty" or an "estimated tax penalty." Ideally it doesn't come to fruition but should a penalty be imposed by the IRS, how does that get communicated to the tax payer? Let's say a penalty is incurred in the 2025 tax year - does that then show up in 2026 (when filing 2025 taxes)? When/how are you informed if you owe a "penalty"? Thank you!

[VolvoGirl]

5/14/25 4 experts explaining the Estimate tax penalty

https://ttlc.intuit.com/community/file-with-turbotax/discussion/irs-notification-re-estimated-tax-pe...

The penalty on 1040 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.  Even if you are getting a refund you can still owe a penalty.

The underpayment penalty amount Turbo Tax calculates on your 1040 or state is only an estimate.  Turbo Tax can not figure it accurately because they don't know exactly when the IRS or state will get your return and tax due payment.  It's very common and normal and expected for the IRS or state to bill you for more or send you a refund.

If Turbo Tax calculates a penalty on 1040 line 38…..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

[evelynm]

Here's a breakdown on the different penalties  that the IRS may access, including those for late payments and underpayments:

1. Late Payment Penalty (also known as Failure-to-Pay Penalty)

• What it is: This penalty applies when you file your tax return on time but don't pay the full amount of taxes owed by the tax deadline (typically April 15th).
• How it's calculated: The penalty is 0.5% of the unpaid taxes for each month or part of a month that the tax remains unpaid, up to a maximum of 25% of the unpaid tax.

2. Underpayment Penalty (also known as Estimated Tax Penalty for individuals)

• What it is: This penalty applies when you don't pay enough taxes throughout the year, either through withholding from your paycheck or by making estimated tax payments.
• Who it affects: This penalty typically affects self-employed individuals, small business owners, and those who have significant income not subject to withholding.
• How to avoid it: In general, you can avoid this penalty by paying at least 90% of the tax shown on your current year's return, or 100% of the tax shown on your prior year's return, whichever is less.   Other circumstances may apply based on the tax liability/high income levels.
• Penalty Calculation: The penalty is calculated by multiplying the underpaid amount for each quarter by the interest rate for that quarter. 

The IRS will notify you of a penalty through a written notice or letter that includes all relevant details about the penalty, how to pay it, and your options for disputing or seeking relief.     Based on the type of penalty will be the year it is due/calculated.   Here is a link for further details:   IRS Penalties 

 As far as your inquiry regarding a penalty "incurred in the 2025 tax year - does that then show up in 2026 (when filing 2025 taxes)" that will be via written notice not part of the following years tax return.