Trigger for Federal & CT Tax Penality

[BillEngr]

During the completion process of 2023 taxes, TurboTax indicated that I had a Federal and State tax penalty, although with my combined normal withholding and a singular estimated payment, I actually overpaid for the year and had a refund coming. While TurboTax did not indicate why the penalty, it then asked if I wanted to use an Annualized Income Installment Method of calculations using Form 2210 which subsequently resulted in removal of the penalty. So, I ask what triggered TurboTax to require this alternate method of calculation so I can try and avoid it for 2024? While retired, my quarterly pension and social security withholding is uniform throughout each quarter of the year.  However, I had a 401K plan Required Minimum Distribution that resulted in a one-time withholding "spike" in a given quarter, as well as a Roth conversion (that drove me doing a one-time estimated payment). Does Form 2210 get triggered when "withholding alone" does not meet required yearly tax due, excluding any estimated tax paid? Clearly my total yearly combined withholding and estimated tax payment exceeded the tax due. Or is it the uneven quarters resulting from the one-time "spikes" of tax due and paid? I think TurboTax only has the total withholding information from 1099 forms and does not have quarterly information but could be wrong. I have options for 2024 and would like to avoid a penalty or the need to have TurboTax do the Annualized calculation method if I can avoid.

[JulieS]

Yes, in the absence of the details you provide on the Annualized method worksheet, TurboTax assumes that all income and tax withheld is received evenly over the year. 

If you have extra income in the fourth quarter, the assumption is 25% of it was received during the first quarter, 25% in the second quarter, etc. 

Estimated payments are recorded by the date they were actually paid. 

If this is the case, there can be a penalty even if you don't owe on the return. That is the purpose of the Annualized method. It is used to show that you had more income at the end of the year than at the beginning.

If you had more income at the beginning of the year than the end, the Annualized method won't eliminate your penalty.