TurboTax incorrectly calculated the interest owed on underpayment of Oregon taxes.

[tbrown31349]

TurboTax incorrectly calculated the interest owed on underpayment of Oregon taxes.

I paid some tax to the state of Oregon with estimated tax payments. I also had taxes withheld from my IRA distributions.  The total amount of tax I paid was 92% of my tax liability from 2023. According to the oregon.gov website as long as I paid at least 90% of my tax liability for the previous year, there is no penalty.

TurboTax improperly calculated that I owed $78 in interest on underpayment of Oregon state taxes this year. In fact, I owe $0.

I just received a letter from the Oregon Department of Revenue telling me this. You really should fix this.

[SteamTrain]

@tbrown31349 

Those interest amounts can be assessed, even if you've paid over 90%.....and even if you get a refund !!!

The withholding probably wasn't the issue...it was probably the timing or amounts on your estimated tax payments.

IF you didn't pay those estimated taxes in even amounts for every quarter...or made larger payments in the last quarter or three....then, you would likely need to have prepared, and filed the OR-10 form along with your OR tax filing to get that interest (or interest and penalties) reduced or eliminated.

For instance, if you didn't make a 1Q estimated payment, or if you made a larger estimated tax payments in any of the last 3 Quarters to cover an unexpected bump in income...the default calculations can result in a penalty/interest because the default assumes all income was even over the year, and some of the taxes for it wasn't paid in the earlier quarters.

To possibly eliminate the penalty/interest, you would fill out the OR-10 form, which uses your annualized income (income by uneven "quarter"  3mos, 2mos, 3mos 4mos)  ) to let OR know exactly when your various sources of income occurred (interest, dividends, cap gains, pension income, wages etc), vs when your withholding and estimated payments occurred.

I don't have the TurboTax Oregon software...but for all the states I've seen, the TTX software does include the annualized income forms for that state in their state software, usually in the state Other Tax Situations page.  But TTX doesn't automatically force you thru those calculations, you usually have to start thru them yourself....why???  Because they are a pain-in-the-patootie to fill out, requiring you to gather tons of exacting information for the whole year.  Having done it once, I won't bother again for a penalty/interest less than ~$50...and would think long before doing it for less than ~$100.

_______________________

to see what's involved, go to the OR Dep of Rev page and download the instructions for the OR-10 to see what is involved ((Table 3))... (the TTX software routine may make it a bit simpler...but maybe not)

Oregon Department of Revenue : Forms and publications : Forms and Publications Library : State of Or...

[Hal_Al]

The rule is  not 90% of the previous year. It's 90% of the current year or 100% of the previous year. 

2024 Form OR-10 instructions:

"Required annual payment: The total amount of all tax payments, including estimated tax and withholding, that you must make in order to avoid being charged underpayment interest. Your required annual payment is the lesser of:
• Ninety percent (90%) of the tax after all credits shown on your 2024 Oregon return; or
• One hundred percent (100%) of the tax after all credits shown on your 2023 Oregon return (also known as “safe harbor”)."

[SteamTrain]

Ouch.

Yep....missed that .....making sure which tax year the 90% or 100% applies to, is critical.

[tbrown31349]

Thanks to you and @SteamTrain for the comments.

I missed the fact that the oregon.gov website specifies the 90% level applies to the current tax year and you must pay 100% of the previous tax year to avoid penalty.

Interestingly, I paid about 92% of the previous year (2023) tax liability, but my tax liability for the current year (2024) was much higher and I paid way less than 90%. Despite that, I received a letter from the Oregon Department of Revenue saying I did not owe the penalty that TurboTax calculated for underpayment. 

Who knows what that means, since I did not meet their stated requirements.

FYI, I paid one estimated tax payment in April, 2024, then had tax withheld from IRA distributions. I did a single IRA distribution in December, 2024, so there was one payment to Oregon Department of Revenue which occurred in the last week of December.

When calculating that I did not owe a penalty, the Oregon Department of Revenue split the amount of tax withheld from my IRA distribution in to four equal payments occurring on the normal due dates for quarterly estimated taxes. To clarify, if I had paid $1000 in Oregon tax withheld from my IRA distribution in December, Oregon treated it as four payments of $250, paid on April 15, 2024; June 17, 2024; Sept 16, 2024 and Jan 15, 2025.

On the worksheet for this, TurboTax also spread out the withholding amount. However, the TurboTax calculation results in me owing an interest penalty for underpayment. Oregon Department of Revenue didn't show me a worksheet in their letter, but does show the credit amounts and dates they used. Oregon's amounts and dates are the same as the TurboTax amounts and dates. But Oregon says I own nothing.

After looking at all this and with the help of your comments, I think TurboTax followed the rules correctly, but got a different answer than the Oregon Department of Revenue. In this case, since the Oregon Department of Revenue is sending me a refund of the penalty I paid based on the TurboTax calculation, I think I'll go with Oregon's take on this!!