I don't understand why TT has entered and underpayment penalty for estimated taxes. I haven't been required to pay estimated taxes.

[dlt4]

Doesn't TT generate the forms necessary for paying estimated taxes automatically if needed?

[gloriah5200]

Underpayment penalties are assessed if you don't withhold or pay enough tax on income received during each quarter.

In fact, it's entirely possible to get hit with an underpayment penalty even though you paid your tax bill in full by the April deadline or are getting a refund.

We'll automatically generate a Form 2210 if your return needs it. 

Note: You'll need your prior year tax return to answer the questions. (Providing this information may reduce or eliminate the underpayment penalty being calculated.

1. Sign in to TurboTax and open or continue your return.
2. Search for underpayment of taxes.
3. Select the Jump to link in the search results.
4. The Underpayment Penalties screen will display the penalty amount. Select Continue to review this section and make any needed adjustments.
   • Note: If you see No Underpayment Penalty, you either haven't entered your income and/or estimated tax payments yet, or you aren't subject to an underpayment penalty.

(Optional) Keep going, and when you get to the Annualized Income Method screen, answer Yes if you want to see if we can reduce the penalty.  It will require breaking up your income and withholding and dectuctions over certain periods of time.

underpayment penalty

[dlt4]

Thanks for your reply. Why did the subject of a penalty, form 2210, and estimated taxes even come up while doing this year's return? Is the penalty because I didn't make estimated payments last year? I didn't because TT didn't suggest that I should, nor has it suggested it for this year. The penalty is only $20 so not a big deal, I just want to understand what is going on.

[ErnieS0]

The penalty came up because you owed tax in 2020, not because you did not make estimated payments in 2019. TurboTax did not suggest estimated payments in 2019 because it did not think those payments were necessary based on your 2019 return.

TurboTax can only look backward. You can look forward. If you see that you have a lot of income without any tax withheld, it might be time to consider estimated payments during the year.

The IRS levies a penalty for underpayment of estimated tax if you didn’t pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax.

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.

Refer to Penalty for Underpayment of Estimated Tax

[Johannarama]

Wait, so I'm reading this thread b/c I also got surprised by this "You have a penalty for underpayment of estimated taxes" statement that popped up. We've owed (and completely paid) the IRS every year for at least the past 5 years and I've never seen this message before. (We've also never paid estimated taxes.) It's a small amount but I still want to know why we now have a "penalty" for owing tax. 

[ShirlynW]

The IRS has a "pay as you go" system, which means you're supposed to pay taxes throughout the year as you earn or receive income, rather than sending a big lump sum to the IRS at the end of the year. If you owe more than $1,000 when you calculate your taxes, you could be subject to a penalty. 

Three ways to avoid an underpayment penalty:

• Pay at least 90% of the tax you owe for the current,
• Pay 100% of the tax you owed from the previous tax year,
• Owe less than $1000 in tax after subtracting the amount withheld and credits.