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TurboTax was correct to calculate the underpayment penalty on form 502UP. This is why...
GENERAL INSTRUCTIONS Section 10-815 of the Tax-General Article of the Annotated Code of Maryland requires every individual, or individuals filing jointly, who receives taxable income which is not subject to Maryland withholding, or from which not enough Maryland tax is withheld to file a Declaration of Estimated Tax, if the income can be expected to develop a tax of more than $500 in excess of the Maryland withholding. Furthermore, Sections 13-602 and 13-702 stipulate that any individual so required to file, who either (1) fails to file on the date or dates prescribed; (2) fails to pay the installment or installments when due or (3) estimates a tax less than ninety (90) percent of the developed tax shown on the return for the current tax year and less than 110% of the tax that was developed for the prior year, shall be subject to penalty and interest. See 502UP Form and Instructions.
Note that if any of the three options in the second sentence is true, then “[you] shall be subject to penalty and interest.” As you know, you missed the payment due dates for the 2nd and 3rd quarter by a few days in each case.
On the same page in the Instructions, it goes on to say:
If your estimated tax payment was not timely, but was paid earlier than the due date of the next quarter, adjust the factor as follows:
…
2nd Period - For payments due by June 15, 2020 that were not paid by June 15, but paid earlier than September 15, count the number of months from the due date of June 15, that the payment was late. Treat a partial month as one month. Divide that number by twelve and multiply it by the 10.5% annual rate. Apply this adjusted factor to the underpaid amount on line 15. Note: The due dates for the first and second installment periods were extended to July 15, 2020 due to the catastrophic health emergency related to COVID-19. Use the adjusted interest factors on Line 16 of Form 502UP.
3rd Period – For payments due by September 15, 2020 that were not paid by September 15, 2020 but paid earlier than December 15, 2020, count the number of months from the due date of September 15, 2020 that the payment was late. Treat a partial month as one month. Divide that number by twelve and multiply it by the 10.5% annual rate. Apply this adjusted factor to the underpaid amount on line 15. For payments made on or later than December 15, 2020, apply the interest factor of .0595 to the underpaid amount on line 15. …
In summary, if you are required to make estimated payments (which you were because you didn’t have a lot of withholding), then you have to make the quarterly payments in a timely manner or be penalized for under paying each quarter. As you saw above, since you missed two payments by a few days, you were penalized the equivalent of a month for the second quarter and a month for the third quarter (“Treat a partial month as one month”).
Since options (1), (2), and (3) in the second sentence of the General Instructions are equal, if any one of them fails, then you are subject to penalty and interest. The fact that you paid more than 100% of your tax by the end of the year is not sufficient to overcome this.
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