In 2017 I paid over 110% of 2016's total federal tax bill. TurboTax 2017 is still showing me owing an underpayment penalty. I can't see the justification. Any ideas?

[johnglenn]

pretty easy calculation - TT shows my 2017 W2 with-holdings and estimated taxes being over 110% of 2016's tax due.  I do not understand why it is calculating an underpayment penalty.  TT2017 is updated as through today, 2/25/2018

[Zbucklyo · Accepted solution]

Timing matters. The federal income tax system is "pay-as-you-go", with payments required each quarter.  Form 2210 assumes earnings and withholding are distributed evenly throughout the year, and applies the 110% rule for each quarter.  It is possible that you had a shortfall in one of the early quarters that was made up with an estimated tax payment later in the year.  That would not cure the shortfall from the earlier quarter.

If withholding was not equal throughout the year, you can update Form 2210.  If your income was not earned equally throughout the year, you can submit Form 2210AI instead.  Warning:  neither of these approaches are easy to implement,