I paid my taxes on time through TT on time. I just received Tax penalty bill for failure to pay proper estimated tax. Never happened before. Why now?

[Critter-3]

There are 2 penalties ... paying on time saves you the FAILURE TO PAY penalty  however  although the TT program calculates an estimated UNDERPAYMENT penalty based on the info you entered on the tax return the IRS/State reserve the right to compute the underpayment penalty based on the info they have and send you a bill for the extra amount.

What are estimated taxes?

https://ttlc.intuit.com/replies/3301588

Do I need to make estimated tax payments to the IRS?

PAYING ESTIMATES
For SE self employment tax - if you have a net profit (after expenses) of $400 or more you will pay 15.3% for  SE Tax on 92.35% of your net profit in addition to your regular income tax on it. So if you have other income like W2 income your extra business income might put you into a higher tax bracket.

You must make quarterly estimated tax payments for the current tax year (or next year) if both of the following apply:
- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits. 
 
- 2. You expect your withholding and credits to be less than the smaller of: 
    90% of the tax to be shown on your current year’s tax return, or 
  100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)

[stallion24]

Thanks you for quick response.  Ironic how I have not had to pay this penalty before (I almost always owe money  when I file due to investment income, etc as opposed to corp tax withholdings) and I have never had to pay this additional tax, and all of a sudden, I get this tax bill. 

[Critter-3]

Penalties (not interest) can be questioned and removed if you believe the IRS has it wrong.  Read the notice carefully for your options. 

[stallion24]

doing more research.  Why doesn't TT calculate penalty on the form 2210.  I looked on my tax form and it did not add an amount for tax penalty.. it knows I owe taxes so I would think it would calculate some type of penalty to cover 

[Mike9241]

you may want to see if the Turbotax file has form 2210 which is where the underpayment amount and penalty are computed.

[Critter-3]

If you didn't skip that section AND you owed $1000 or more than the option to let the program estimate the penalty, skip that penalty section altogether or  complete the Annualized Income option would have been presented.   Once again the program can only compute the penalty if you let it and using the info you provide.

Now the taxing authority computes the penalty using the info they have gathered which may be different than what you listed.  For instance the dates you paid estimated payments if any.  

[stallion24]

Thx.. it did not complete this form. 

[stallion24]

I must have skipped the section..  I guess I am feeling a bit better knowing it’s my fault, but hate paying taxes regardless.  🙂

At least I know for next year! 

[mhh0091]

On page 1 of the PDF that TurboTax generated, I notice in the 2020 Federal Tax Return Summary that there is a charge of $452.00 for "Penalty/Interest".  I never received any letter from the IRS about penalty or interest.

What is this Penalty/Interest for?

[VolvoGirl]

If you do not pay enough tax, you may have to pay a penalty for underpayment of estimated tax. Even if you are getting a refund you can still owe a penalty for not paying in evenly during the year.  Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. It is included in your tax due or reduces your refund.

FAQ https://ttlc.intuit.com/community/tax-payments/help/how-do-i-add-form-2210/00/25703

Getting a Refund and have a penalty?

https://ttlc.intuit.com/questions/2584221-why-am-i-getting-an-underpayment-penalty-if-i-m-getting-a-...  

IRS info on Underpayment Penalties..

http://www.irs.gov/taxtopics/tc306.html#skiptocontent

[mhh0091]

But why would TurboTax charge us the penalty AND not receive any notice from IRS?

TurboTax took over $400 and we never heard a word from the IRS (thank goodness).

[Vanessa A]

There could be multiple reasons.  What year did you get the bill for? Was the $400 you paid to TurboTax or to the IRS or state?  Who is the payee on the bank statement for the $400?  Did the payment actually come out of your account or did you unintentionally select the mail payment option and inadvertently not send the payment?

The IRS could have randomly chosen your return to audit for the year you received the letter for, resulting in them catching an underpayment of estimated payments. 

Did you owe a penalty for that year and allow the IRS to figure the penalty for you?

If TurboTax calculated a penalty and you paid it, then the IRS would not have a reason to notify you as you would be paid in full.  The IRS would generally only notify you when there is a problem that they catch, or when the penalty amount is not included on form 2210

Those are a few of the reasons why you could have received the penalty letter from the IRS.  Depending on your details, there could potentially be other reasons. 

[Critter-3]

The TT program only calculates an estimated underpayment penalty based on the info you entered in the program  but the fed/state reserve the right to bill you for an additional penalty based on the info they have and the date the balance due was actually paid and the return was actually filed.