Do I have to make estimated payments thru the year? The IRS says I should have made estimated tax payments, and they are charging me another $1K+. Can the IRS do this?

[Hawaii501]

My 2021 taxes were over $4K, and I paid it.  Now the IRS says I should have made estimated payments throughout the year, and I owe over $1K because of it.

[VolvoGirl]

Yes.  If you owe too much there should be a penalty on 1040 line 38.  Do you have a penalty on 38? 

If you do not pay in enough tax from withholding and estimates, 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.

So yes you should consider sending in some quarterly estimates if you think you will end up owing too much next year.  Why do you owe so much?  Do you have investment income or self employment income?  Or take a big IRA or 401K withdrawal?

You must make quarterly estimated tax payments for the current tax 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).

The 1040ES quarterly estimates are due April 18 June 15, Sept 15 and Jan 17, 2023. Your state will also have their own estimate forms.

To prepare estimates for next year you need to be in your current return. But be careful not to change anything in your actual return.

In TurboTax Online, sign in to your account.
Select Tax Home in the left menu.
Scroll down to Your tax returns & documents.
Select 2021, and then select Add a State (you're not actually adding a state, this just gets you back into your return so you can make changes).

Search by typing in W4. Hit the Enter or Return key to get the Jump to w4 link to show up. Go to the W4 page and it will ask if you want to Change your W4. Click on NO. The next page will start the Estimates.

OR go to
Federal Taxes or Personal (Home&Business version)
Other Tax Situations
Other Tax Forms
Form W-4 and Estimated Taxes - Click the Start or Update button

[fanfare]

@Hawaii501 

$1,000 sounds like an unusually high penalty.

Did you have any withholding during the calendar year?

Your tax return may have been adjusted elsewhere resulting in more tax due.

[rjs]

If Form 1040 line 38 is blank, you might have selected the option to have the IRS calculate the penalty, instead of having TurboTax calculate it.

[dmertz]

It seems that the IRS believes that you owe more than just an underpayment penalty.  A $1,000 tax bill is far too much to be explained by a just the underpayment penalty on a $4,000 underpayment.

[bosso3]

Was your income approximately equal in all 4 quarters of 2021?

Did you have an unusually large amount of taxable income in one or more quarters?  Especially the 3rd or 4th quarter?  This includes things like a large capital gain, IRA withdrawal or other taxable events like these.

If so, you may be able to reduce the underpayment penalty amount by completing Form 2210 - Underpayment of Estimated Tax.  Use this form to report the income you received in the appropriate quarter of 2021.

Also, You can consider an appeal of the penalty, if you qualify.  See the following links for more info.

https://www.irs.gov/appeals/penalty-appeal

https://www.irs.gov/payments/penalty-relief

https://www.irs.gov/payments/underpayment-of-estimated-tax-by-individuals-penalty

https://www.irs.gov/publications/p505  Tax Withholding and Estimated Tax.

https://www.irs.gov/businesses/small-businesses-self-employed/penalty-relief-due-to-reasonable-cause

https://www.irs.gov/businesses/small-businesses-self-employed/penalty-relief-due-to-first-time-penal...

If the above does meet your needs and you want more specific advice, please respond with info from  the penalty notice you received from the IRS and the reason for the penalty.  If you do not have a penalty notice, look at the notice the IRS sent outlining the changes they made to your return and how that resulted in the penalty, and what the penalty amount was, relative to your taxable income and total taxes owed.

good luck.

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[Mike9241]

the $1,000 is unlikely to be solely due to not paying estimated taxes of $4,000.  the underpayment of estimated tax penalty would be less than $100

did you file after 4/18/2022 without a timely extension. the penalty for late filing and late payment after 4//18 would be 5% a month or a fraction thereof. this is unlikely since you got the penalty notice so soon.

so there is something else going on. we can't see the penalty notice so you may want to contact

The Audit Defense service is provided by TaxResources, Inc., also called TaxAudit.com, in partnership with TurboTax. If you paid for Audit Defense and you received a notice, call TaxResources, Inc. at 877-829-9695, or report your notice on their website at http://intuit.taxaudit.com/. Do not contact the tax agency until you have spoken to TaxResources. They may contact them on your behalf.