Does paying 100% of the prior year's taxes in estimated taxes for the current year avoid the underpayment penalty?

[skwiley]

The program says I have a penalty ($66) for underpayment of estimated taxes. My 2023 Federal total tax was $5411 and my 2024 total estimated tax payments were $5411, which I entered in the TurboTax credits section.

[ThomasM125 · Accepted solution]

In general yes, but there are some qualifications. The tax payments would have to be 110% of the prior year's tax if you earned over $150,000 ($75,000 if filing married-separate). Also, the payments would have to be paid in on a quarterly basis and timely made.

[skwiley]

Thanks for your quick response.  My income is well below $150,000, and I am filing single as a widower.  Am I missing something?  If not, how do I get this corrected without upgrading to Live Help?  Thanks in advance!

[KeshaH]

Confirm the dates that you entered for your estimated payments, and the amounts paid for each quarter. You can still get a penalty for not making the required payments by the due dates or not making enough of a payment for each quarter - even if you make the full payment by Q4. 

Estimated payments for 2024 were due on:

- April 15, 2024 for Q1

- June 17, 2024 for Q2

- September 16, 2024 for Q3

- January 15, 2024 or Q4

[skwiley]

Thanks for your response!  I double-checked and the due dates were all met, paying $1353 each for Q1, Q2, Q3, and $1352 for Q4, totaling $5411 and the same as my 2023 Federal total tax.  I'm baffled...  Does TurboTax perform a final check that might flag this as an error and remove it before filing?  Or is there a way to query live help without upgrading since I have no other problems or questions?  TIA!

[JohnB5677]

Here are the guidelines to avoid the underpayment penalty.

It does not sound like you should have a penalty. 

The underpayment penalty will be assessed if any of these apply:

• "If you don’t pay enough tax through withholding and estimated tax payments, you may have to pay a penalty."
• "You also may have to pay a penalty if your estimated tax payments are late, even if you are due a refund when you final file your tax return."

To avoid the under payment penalty:

• The amount you owe is less than $1,000, after subtracting withholding and refundable credits.
• You paid 90% of the tax that you owed for the current year.
• You paid 100% of the previous year tax, (110% for higher incomes).
• If your previous year's adjusted gross income was more than $150,000 you will have to pay in 110% of your previous year's taxes to satisfy the "safe-harbor" requirement.

"Typically, underpayment penalties are 5% of the underpaid amount, and they're capped at 25%. 

Underpaid taxes also accrue interest at a rate that the IRS sets annually."

To avoid this situation it is recommended that you adjust your W-4 with your employer or pay estimated taxes.

Underpayment of Estimated Tax by Individuals Penalty

[skwiley]

Just to follow up my post about being flagged for an underpayment penalty despite having paid estimated taxes that were 100% of the prior years taxes:  this was eventually resolved in a much later screen that referred me to IRS Form 2210 which reviews these payments.

It would’ve been VERY helpful if the earlier screen indicating underpayment had said this would be further reviewed later.  I spent way too much time trying to sleuth out an error that I did not make.

Also, for others encountering this issue, be aware that TurboTax doesn’t provide form 2210 or a worksheet, but simply says to refer to the form on the previous years taxes.  I did not use this form in the prior taxes, so I had to search for it to see what it actually involved.

Much thanks to those who replied to my original question!

[sswwtang]

I have the same problem. 

 There is no place to enter total tax of 2023 in TurboTax 2024. I called TurboTax customer service, the answer is "there is no need to enter 2023's total tax". 

My question becomes:

Without knowing prior year's total tax,  what is the way for TurboTax2024 to determine whether customer should pay penalty or not?

[KeshaH]

As you go through the underpayment screens, you should come to a screen that asks for your 2023 liability. It usually comes up early in the process right after confirming your 2023 filing status.

@sswwtang 

[fanfare]

The "100% of prior year's tax" rule applies to withholding only, not Estimated Tax.

That's why you may have to complete Form 2210.

[sswwtang]

2023 liability page says: 

Enter the amount in your 2023 Form 2210 line 4 or Form 2210-F line 6.

I do not have 2023 Form 2210 nor Form 2210-F. TurboTax customer service helped me go though this page, did not ask me to put 2023 tax amount in here. 

[sswwtang]

-- The "100% of prior year's tax" rule applies to withholding only, not Estimated Tax.

-- That's why you may have to complete Form 2210.

When I say Estimated tax, I mean withholding. My 2024 withholding is more than 2023's total tax.

TurboTax page for 2023 Tax Liability says

    "Enter the amount in your 2023 Form 2210 line 4 or Form 2210-F line 6.". 

I use H&R Block to prepare 2023 tax return. They do not give me Form 2210 nor Form 2210-F.

[sswwtang]

Hi KeshaH,

Thank you very much for your answer

I tried to put 2023 total tax in "2023 liability" page, then TurboTax removed the penalty.

I do not know why TurboTax puts "Enter the amount in your 2023 Form 2210 line 4 or Form 2210-F line 6" here.  Does it mean 2023 total tax? More confusing, I did not get 2023 Form2210 from my 2023  tax preparer.

I want know if I did it right.

Thanks again

[KeshaH]

You're welcome!

You will use your 2023 total tax liability minus the following credits on your 2023 return (if you had any)

- earned income credit

- additional child tax credit

- refundable American Opportunity Credit

- fuel tax credit

- premium tax credit

- qualified sick & family leave credit, and

- credit for claim of right, if any.

@sswwtang