I am working on AZ state taxes and it is showing I have a $44 dollar underpayment penalty for last year but we owed $518 and paid it. Any idea why this would be?

Not certain. Normally if you owe less than $1,000 most avoid this penalty. Did you have to make estimated payments last year to AZ?

I have provided the link for the Underpayment Penalty for AZ here: https://www.azdor.gov/Portals/0/ADOR-forms/TY2016/10600/10642_inst.pdf

The table shows where a penalty might be charged.

If you still feel that you were charged the fee in error, you would need to reach out to Arizona for clarification. The contact information is right at the top of the page.

Hope this helps!