Per IRS rules:
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.
I had more money withheld for federal income tax in 2021 than my full tax bill in 2020. That should qualify for the last of these conditions (which I bolded). Then why would TurboTax build a non-zero penalty into my federal tax bill (1040 box 38)? Yes, I owed more than $1000 to the IRS in taxes for 2021 (on account of some cap. gains taken from a stock sale), but my reading of the conditions above indicate I shouldn't have been penalized.
