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pwpky
New Member

I receive monthly retirement checks. Why do I have underpayment penalty when I don’t do taxes quarterly?

I did not make any changes to my withholding and paid the full amount TurboTax said I owed last year
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1 Reply
DianeW777
Expert Alumni

I receive monthly retirement checks. Why do I have underpayment penalty when I don’t do taxes quarterly?

The IRS system is a pay as you go system.  When you make money they want the tax dollars owed each quarter, however there are exceptions to the penalty if you qualify.  

 

Generally, you can avoid the penalty if your total timely estimated payments and withholdings are greater than or equal to the lesser of:

  • 90% of the total tax after credits for the current year, or (Form 1040, Line 24)
  • 100% of the total tax after credits in the prior year (Form 1040, 2022, Line 24)
  • See one exception below.

You can also avoid the penalty if the amount you owe is less than $1,000 as long as any estimated tax payments you made are timely.  If you did not pay estimated payments and did not have income tax withholding, then you can expect a penalty if one of the two exceptions are not met.

 

Note: High-income taxpayers. If your adjusted gross income (line 11 of your 2023 Form 1040) is greater than $150,000 (or $75,000 if you're married and file a separate return from your spouse), you can avoid a penalty by paying at least 110% of your total tax from the prior year.

To review your penalty and possibly try the annualization method (usually benefits those whose earnings are greater in the last quarter):

  1. Sign in to TurboTax and open or continue your return.
  2. Search for underpayment of taxes.
  3. Select the Jump to link in the search results.
  4. The Underpayment Penalties screen will display the penalty amount. Select Continue to review this section and make any needed adjustments.
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