When going through the underpayment penalty questions, TurboTax asks about your 2023 information to determine if you have a penalty for your 2024 return. The IRS won't have any information about a penalty just yet.
To avoid or reduce the underpayment penalty, you have to pay the smaller of:
- 90% of your current year liability (2024) or
- 100%* of your last year liability (2023 - this is called the safe harbor)
You were asked about your 2023 income and 2023 tax liability to see if your 2024 withholding & estimated payments were enough to avoid the penalty on your 2024 return. If you paid in at least 100% of your 2023 liability, you wouldn't owe a penalty.
TurboTax is working correctly to calculate the underpayment penalty. By choosing to let the IRS calculate the penalty, TurboTax will not calculate if you have a penalty on your 2024 return for you 2024 payments. You will get a bill in the mail at a later date.
* If your 2024 income is over $150,000, you'd need to pay 110% of your 2023 liability
