I did not pay estimated taxes for 2020 and yet Turbo Tax is saying I have to pay a penalty of $40 for underpayment of my estimated taxes. Why?

[VolvoGirl]

It's really for not paying Estimates.  You owe too much on your tax return.  

If you do not pay enough tax, you may have to pay a penalty for underpayment of estimated tax. Even if you are getting a refund you can still owe a penalty for not paying in evenly during the year.  Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid 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. It is included in your tax due or reduces your refund.

You might be able to eliminate it or at least reduce it.  You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you.  It's form 2210.

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

[BillM223]

Is this for the 1040 return?

Did you owe more than $1,000 at the end of the year? We have a pay-as-you-go tax system, which means that you are expected to withhold your tax during the year. 

Note that in terms of paying your taxes, withholding and estimated taxes go to exactly the same place, so if you under withheld for the year, you might well be charged an underpayment of estimated tax penalty. 

There are some exceptions to paying the penalty, so you should do a Search (upper right) for underpayment penalty and click on the jump-to link (Mac users must find underpayment penalty in the Topics List). NOTE: just type underpayment penalty and hit enter - don't choose any of the suggested search terms.