topic Re: Why do i owe an underpayment penalty? in Get your taxes done using TurboTax

Why do i owe an underpayment penalty?

ioliva1 — Mon, 03 Mar 2025 19:29:31 GMT

I did everything correctly with turbo tax last year and yet i owe an underpayment penalty? for what reason? Turbo Tax should be covering this as I filled out everything correctly

Re: Why do i owe an underpayment penalty?

Vanessa A — Mon, 03 Mar 2025 19:42:06 GMT

An underpayment penalty is incurred because you paid too little in the tax year that you are currently filing (2024). So, having filed everything correctly in 2023 does not cause or stop you from receiving a penalty in the next tax year.

Basically, this penalty comes because in 2024, you earned $XXX,XXX amount and had a tax liability of $X,XXX amount but only paid $XXX amount. The IRS is a Pay As go system, meaning, as you earn it, you must pay the IRS. When you pay too little during the tax year, the IRS will penalize you for this. This is not something TurboTax files or controls.

It is possible to get the penalty waived if:

You had $0 tax liability in 2023
You owe less than $1,000
You paid 100% of your 2023 tax liability (110% if your income was over $150,000)
You paid 90% of your 2024 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

To apply for the penalty waiver, select the following:

Other Tax Situations
Show more next to Additional Tax Payments
Start next to Underpayment penalties

You may want to complete a new W4, if your situation has changed such as you received another source of income, a spouse is working is received a raise or if you have self-employment income. If you were self-employed, you will need to make quarterly estimated payments to cover your Self Employment taxes of 15.3% and avoid penalties.

In the meantime, if you are unable to pay your taxes in full, you should still file by April 15th, but you can apply for a payment plan from the IRS. When you get to the end of TurboTax, prior to hitting file, it will give you the option to apply.

Re: Why do i owe an underpayment penalty?

ioliva1 — Tue, 04 Mar 2025 03:15:56 GMT

I'm over paying on my federal taxes though.

The penalty seems to be with my state tax in new mexico. The problem is, that I am employed in texas as a school teacher. So why am i getting this penalty?Based on what you're saying it seems to be because I'm not garnishing my wages to pay taxes in New Mexico. But how can I do this if my wages are earned in texas?

Re: Why do i owe an underpayment penalty?

KeshaH — Tue, 04 Mar 2025 13:34:36 GMT

If you live in New Mexico, your income is taxable in New Mexico even if it was earned in another state. You would owe the penalty if you didn't pay any tax during the year. If your employer won't withhold tax for New Mexico, you would need to make estimated tax payments on your own.

If you don't live in New Mexico then none of your income would be taxable to New Mexico.

Re: Why do i owe an underpayment penalty?

KeshaH — Tue, 04 Mar 2025 13:34:37 GMT

If you don't live in New Mexico then none of your income would be taxable to New Mexico.

Re: Why do i owe an underpayment penalty?

sean6 — Sun, 13 Apr 2025 15:52:07 GMT

I had the same thing happen to me this year. I think what the OP is asking (which is my question as well) is, shouldn’t Turbo Tax catch these things before they happen? If I had used a real tax accountant, would they have caught it? Or in other words, why am I paying turbo tax plus protection if I get slapped with $1k in a penalty a year later?

Re: Why do i owe an underpayment penalty?

JotikaT2 — Sun, 13 Apr 2025 16:57:07 GMT

Not really. Only you as the taxpayer are aware of changes to your income, withholdings, estimated tax payments, and other sources of income, just to name a few items. If you were to use a local accountant, they may offer a review mid-year to make sure your tax payments and withholdings are still covering all of your income sources year to date, but that would depend upon their business operations and will vary.

To assist in the future, TurboTax does offer various calculators that will be updated shortly for the 2025 tax year. Please see our tax tools page for all of the calculators that can be used based upon your specific tax items.

@sean6