Extension payment to avoid penalty

Take a look at the second option below. Generally, most taxpayers will avoid the underpayment 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. 

Income taxes are pay as you go. You may also have to pay this penalty if you didn't have enough withholding in each quarter. You may try annualizing your tax to see if you fell short in any quarter.

 

• Tip: To reduce or possibly even eliminate your underpayment penalty,  search for annualizing your tax (use this exact phrase) inside TurboTax. This will take you to the underpayment penalty section and we'll take you through the steps to possibly reduce your underpayment penalty. (If you don’t see Jump to annualizing your tax in the search results, make sure you’re in your return and not on the Tax Home page.)

 

Related information: How do I file an IRS extension (Form 4868) in TurboTax Online?

I know the rule you mentioned. I just need to know, if my calc is correct.

 

• 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. 

Based on my numbers, what do you see?

 

Total Tax $21,636
withholding is $18,829.  

 

18.8/21.6 = 87%.. that mean, I should pay 900 with extension to avoid?

 

 

In terms of simple math that is close, bot not correct.

2020 total tax = $21,636 X 90% = $19,472.40

$19,473 - $18,829 = $644

 

However,  you may have incurred a penalty leading up to the date you file your return.  I suggest you pay the $900 to be sure it is covered.

does this rule apply to both federal & state?

No, each state has its own rules regarding penalties and waiving them.  Check your state's taxing website to find out more information or tell us what state you are filing for.