Do I pay penalty on 2017 return if I had no tax liability in 2016 but will have tax liability in 2017?

[Howard1948 · Accepted solution]

On a personal Federal income tax return, having a zero tax liability in the prior year is one of the exceptions to the underpayment penalty for the current year.  So if your tax liability in 2016 was zero, there is no penalty for underpayment in 2017.  Note that the zero tax liability refers to your total Federal income tax liability (after most tax credits), not just the amount that might have been payable by 4/15/17 or that you might have had a refund due on your filed return.  Your actual total tax liability after most credits but before any withholding or estimated payments must have been zero.

[robertpaul100]

My mother has this exact situation where she had $0 in liability in 2016 and now has $1004 liability in 2017.  Where does Turbo Tax ask you if you are eligible for this exception?  She should not be browsing 1040 manuals to find out that this is being calculated wrong.  Let me know.  thank you!