Estimated Tax Underpayment Penalty

[pcvita]

I have paid estimated taxes from Q2 to Q4.  I am getting a refund this year so it appears I have paid enough.  Turbo Tax says I have to pay an Estimated Tax Underpayment Penalty of $59.

Why is there a penalty?  Is it because I did not pay in Q1?

Thanks,

[akktent]

I'm in the same boat. Id this a TurboTax issue or an IRS issue?

[KathrynG3]

Yes, the penalty is probably because of not paying Q1; Yes, this is an IRS requirement. 

The IRS presumes that your income was earned evenly throughout the year. Therefore, they requires taxpayers to pay income taxes evenly throughout the year.

Interruptions or fluctuations in earnings can create discrepancies to the IRS assumption and could result in penalties.

Form 2210 reports income that is not earned evenly throughout the year and will recalculate any underpayment penalty to more closely report the income periods.

For further explanation and steps to enter these details in TurboTax, click How do I add Form 2210?

[BillMar472]

KathrynG3,

I am surprised that this year I got hit with an underpayment penalty. While the amount is not large I am curious why it has happened so that it does not grow in size if the future. I complied fully with the following rules, yet got a penalty.

"Most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of 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. My AGI was more than 150k, but I withheld more than 110% of the prior year's tax."

I did have dividends and interest during the year, but also a pension which has withholding every month.

I took my RMD in December 2019, which the provider did not withhold sufficient tax. So I made an estimated payment for Q4 before 1-15-2020 to cover the under payment to comply with the IRS rules above.

So why did I get hit? I have had the same situation in prior years (with the exception of needing to make the estimated payment to make up for the under withholding from the RMD)

Bill

[ThomasM125]

If you complete form 2210, you might find that the penalty can be removed. That form will allow you to report how much income was earned in each quarter, so that your tax payments can be matched up on a quarterly basis to your income earned in that quarter.

You can do that in the "Other Tax Situations" tab in TurboTax and then choose "Additional Tax Payments" and then "Underpayment penalties."