We are retired and have never paid estimated taxes. I've actually never heard of it. This year we have a $215 penalty. I simply don't understand why this is happening?

[Vanessa A]

The estimated tax penalty is a penalty for not paying your taxes in full throughout the year. If you are seeing a penalty, you can go back into the program under Other Tax Situations>>Additional Tax Payments>>Underpayment penalties and select start or update next to Underpayment Penalties. These questions are meant to help you apply for the exemption to the penalties.

Some exceptions to the penalty are 

• You had $0 tax liability in 2022
• You paid 100% of your 2022 tax liability
• You paid 90% of your 2023 tax liability 
• You or your spouse (if you file a joint return) retired in the past 2 years after reaching age 62 or became disabled and you had reasonable cause to underpay or pay your estimated tax late

Did you have more income this year or different income?  Did you double check your entries?

If nothing changed in your income at all, a lot of people when they owe taxes when they never did before, is entry errors.  So it is a good idea to go back and double check all of your entries. 


One thing that can occur with a retired couple is that your social security taxable amount is based on your combined income.  Combined income is 1/2 of your social security plus non-interest plus other income.  Social security starts at 0% taxable, then goes to 50% taxable then 85% taxable.  So, if your combined income increased from $43,000 to  $44,000 that would make 85% of your social security, whereas last year it would have been 50% taxable.  This could make your tax liability go up quite a bit. 

If you fall into the following, 85% of your social security is taxable income

• Single with income above $34,000
• Married Filing Jointly with income above $44,000
• Married Filing Separate regardless of income

If you fall into the following, 50% of your social security is taxable income

• Single with combined income between $25,000-$34,000
• Married Filing Jointly with combined income between $32,000 and $44,000

Your combined income is calculated by adding your

• AGI plus
• Nontaxable Interest plus
• 1/2 of your social security Benefits

Social Security Benefits Taxes