Yes, the reason you may not receive a full 20% of QBI deduction is because the overall deduction cannot exceed 20% of your taxable income after subtracting out capital gains.
Specifically, the IRS calculation for the penalty is based on the:
- Total underpayment amount
- Period when the underpayment was underpaid
- Interest rate for underpayments (This number changes each quarter. View the IRS’ Interest on Underpayments and Overpayments page.)
- Whatever your QBI deduction turns out to be, it can’t be more than 20% of your taxable income without the QBI deduction.
It's difficult to say why you got an underpayment of tax penalty without seeing your tax return and prior year tax return. I got one myself this year and it is the first time ever. I was not expecting it at all. A lot of the pandemic credits ended this year. That could have had some effect. Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.
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