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Turbo tax underpayment penalty
Hello,
I used Turbo tax premium and while I was going over the federal tax it popped up that I owe an underpayment penalty. I was shocked since I haven't seen or heard of it before. It prompted me to answer some questions and it went away, HOWEVER I am not sure I understood the questions...
So I understand that you need to pay your taxes as you go. My main source of income is W2 where the company does the tax withholding, however 2023 and 2024 I received interest income which increased the taxes I owe by 30% more than what was withhold.
Is this a scenario that I broke the underpayment law? How could I have estimated the income since interest rates change. How can I prevent this from happening? Ask my company to withhold more taxes?
When it comes to the questions I answered, I spoke with a Turbo tax specialist to review them but they are gone... We couldn't find anything in the tool about an underpayment penalty.
I think one of the questions was :
You paid 90% or more of the tax that you owed for the taxable year or 100% of the tax that you owed for the year prior, whichever amount is less.
What is the meaning paid 100% of the taxes that I owed the year prior? I though this means that at the end of year I paid all my taxes and don't owe anything. Does paid mean paid so far ie withhold?