Michigan State underpayment, interest & penalty software bug?

[rjcbbb]

TurboTax said we owed interest and a penalty for Michigan (but not Federal) taxes for underpayment of estimated taxes.  We paid, but then received a refund check for that amount.  Is this a bug, or what did we do wrong?

[MonikaK1]

We don't have any current reported issues with Michigan penalty calculation. It could be that the penalty didn't apply due to the amount of your prior year tax liability, if that information wasn't entered into TurboTax.

Michigan imposes penalties and interest for the underpayment of estimated income tax if you do not pay enough tax throughout the year through withholding or quarterly estimated payments.

Penalty and interest is charged for the following reasons:

• Estimated payments were underpaid in one or more quarters
• Estimated payments were received late
       Note: Payments that are not received by the due date will be applied to the following estimated tax quarter
• No estimated payments were received
• You received income unevenly during the year and did not annualize your income

The Michigan Department of Treasury follows the Internal Revenue Service (IRS) guidelines for estimated tax requirements. Based on the IRS estimated income tax requirements, to avoid penalty and interest for underpaid estimates, your total tax paid through credits and withholding must be:

• 90% of your current year's tax liability or
• 100% of the previous year's tax liability or
• 110% of your previous year's tax liability if your previous year's adjusted gross income is more than $150,000 ($75,000 for married filing separately)

[rjcbbb]

Because I've been using TurboTax for a couple of decades, I presume (perhaps incorrectly) that it would have kept track of prior years' tax payments, etc.  Michigan recently sent 27,000 mailings telling residents that their estimated tax payments had not been properly recorded.  They are now sending mailings retracting that statement.  This may or may not be related, but it points to sloppiness in the treasury department.  Just the same, we cashed the check from Lansing and will keep copies of our checks or bank transfers of estimated taxes.

[Vanessa A]

TurboTax generally does NOT track your estimated or quarterly payments.  You would need to enter them when you file your return.  You can do this by selecting the following:

1. Federal
2. Deductions and Credits
3. Estimates and Other  Taxes Paid
4. Estimates

It is ALWAYS good to keep copies and records to show you made payments, but in looking up this issue it does look like MI did say it was an error in their system. 

[ericmkern]

While you said you are not aware of a problem, I just experienced the same thing as this post.  TurboTax calculated $110 penalty which was included in my electronic filing payment, but Michigan just sent a check for $110 returning it.  Looks like there is a bug in TurboTax!

[rjcbbb]

Years ago, TurboTax would tell you what's in their updates.  I wish they would bring it back.  If it's a bug, it needs to be fixed.