Why do I get a Penalty/Interest of $ 349?

[likesky1010]

I am self-employed as a consultant for over 10 years. I pay an estimated tax quarterly in the normal situation. My income is not fixed. It depends on if the customer has a project for me or not.

Unfortunately, I didn't get any project until September this year. I didn't pay any estimated tax as well until September because I didn't have any income. After I received the consultant fee in September, I immediately paid the estimated tax and then paid another estimated tax on 31 December.

I paid two estimated taxes, and each time the amounts were much more than I usually pay in a normal year because I knew I needed to pay all the tax in two payments but not in 4 payments as usual. The total estimated tax I paid this year is much more than I paid last year. Because I work harder, unexpectedly I earn more than in regular years. This results in I still owe the IRS some tax.

This is the first time I got the Penalty/Interest of the tax. I don't think I should get this penalty/interest. I didn't delay the tax payment. My bank statements will support my arguments. I didn't underestimate the tax on purpose. I already paid much more estimated tax this year than last year.

How can I handle this Penalty/Interest? Where/How can I complain/correct this?

I am using the TurboTax Home&Biz desktop edition.

[VolvoGirl]

You might be able to eliminate it or at least reduce it.  You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you.  It's form 2210.

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

If you have the desktop program you can switch to Forms Mode (click forms in the upper right (left for Mac)) and open the 2210 form.  If the 2210 doesn't show up in the left column, click on Open Forms at the top of the left column.  Type 2210 in the search box and open the 2210 form.  Check box C if you want to let the IRS calculate it.

[Vanessa A]

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 2023
• You paid 100% of your 2023 tax liability
• 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

If you paid 100% of last years tax liability on line 24 of your form 1040 for 2023, then you would be able to be exempt from the penalty.  For next year, since it is hard to predict your income, you can pay 100% of 2024's liability (or 110% if you make more than $150,000, unless you are married filing separately than you would need to pay 100% if you make more than $75,000) to be able to claim the waiver from the penalty.