Calculate IRS underpayment penalty

[yatoshura]

How to calculate the underpayment penalty? Is there a formula available?

Is it preferred to pay the estimated penalty when I file the return or wait until the IRS send the actual penalty bill?

Will there be additional penalty if the estimated penalty that was paid is lower than the actual penalty?

[RayW7]

When you don't have enough tax withholding and you don't make estimated tax payments during the year, then the IRS or your state can charge you with an underpayment penalty.  It is not the same as the interest or penalty the IRS will charge you for not paying your balance due on time (by April 15th).  

This penalty generally only applies when you owe more than $1,000 in federal tax on your tax return.  Basically, you get charged this penalty for owing too much tax and not making the proper payments during the year (either through withholding on your paycheck or estimated tax payments).

"Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, 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."

You can review the underpayment penalty section by using one of the following two methods  

First, you can perform a search within the program. 

• Log in and click Take Me to My Return
• Use the search icon in upper right-hand corner (magnifying glass icon)
• Search for “underpayment penalty”
• Click the “Jump to underpayment penalty” link
• This will take you directly to the section of the program where you can review the underpayment penalty and possibly qualify for an exception

Second, you can use a step by step method of getting to the same place above

• Log in and click Take Me to My Return
• Click Federal Taxes (Personal if in Self-Employed)
• Select Other Tax Situations
• Scroll down to Additional Tax Payments
• Click start/edit next to Underpayment Penalties 

You can also choose to have the IRS figure out your penalty.  Go through the above section for Underpayment Penalty and during that interview, one of the questions will ask if you would rather have the IRS calculate your penalty.  Say Yes, and this will override any penalty TurboTax has calculated.  If you are liable for a penalty, the IRS will send you a bill for this amount later.

-for additional information follow this link-

IRS Topic No. 306 – Penalty for Underpayment of Estimated Tax

[jamart2002]

Generally, most taxpayers will avoid the penalty if they either owe less than $1,000 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. If you owe the penalty and it's not shown on your return, IRS will send you a bill (letter) and give you a date to pay, after which additional charges will accrue.