Incorrect Underpayment Penalty

[Jake2146]

I have the same problem as shuttle1421, where TT is incorrectly reporting that I owe an underpayment penalty.    For 2023, I paid 100% of the tax owed on my 2022 return.  This is the lesser amount when compared to 90% of my 2023 tax liability.  Therefore, I should owe no penalty.  However, TT says I do owe a penalty.  I went through "Other Tax Situations" and verified my 2022 tax liability.  I also double checked all my inputs as to how much tax I paid in 2023, and I paid more than 100% of the 2022 liability.  

[JohnB5677]

I'm not sure what happened, but: 

• Did you pay estimated taxes?
• Did you make a large payment late last year , or this year.

The underpayment penalty may apply if any of these apply:

"If you don’t pay enough tax through withholding and estimated tax payments, you may have to pay a penalty." 

"You also may have to pay a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return."

Estimated taxes

• The amount of tax you paid during the tax year is less than 90% of the tax that you owed for the current year. 
• The amount you paid during the tax year did not equal 100%, (110% for higher incomes) of your taxes owed the prior year. 
• The IRS also says you can probably avoid the penalty if the amount you owe is less than $1,000, after subtracting withholding and refundable credits.

"Typically, underpayment penalties are 5% of the underpaid amount, and they're capped at 25%. Underpaid taxes also accrue interest at a rate that the IRS sets annually."

To avoid this situation it is recommended that you adjust your W-4 with your employer or pay estimated taxes.

Underpayment of Estimated Tax by Individuals Penalty

If I've misunderstood your question, and this does not completely answer it, please contact us again and provide some additional details.

[Jake2146]

Thanks for trying JohnB, but the very text you quote is NOT how the software is working.   According to IRS docs, one owes a penalty if "The amount you paid during the tax year did not equal 100%, (110% for higher incomes) of your taxes owed the prior year. "  But in my case, the amount I paid during the tax year DID equal 100% of my taxes owed the prior year.  An IT person needs to review these complaints.  

[VolvoGirl]

I had a refund once and still had a penalty for not paying in evenly during the year.  You can leave the penalty line blank and let the IRS figure any penalty due.  When you went though the underpayment section form 2210 did you fill out all the quarterly amounts for income and withholding, etc?  

If you are filling out form 2210 Schedule AI then watch out for the dates. They are different than quarterly dates. And all start with Jan 1. You will need to add up the individual paychecks and income.

If you file with a penalty or without the penalty, it's common and normal and expected for the IRS or state to bill you for more or send you a refund.

[JohnB5677]

Hi @Jake2146,  

Several people have questioned the calculation. but we cannot see your tax return.  

However, there is a way for an analyst to see your tax return with only the data and absolutely no personal information.

If you're willing to participate, please follow these directions: 

You can share your return with a specialist.

The return will be "sanitized", meaning all names, social security numbers and personal references are removed.

We will then be able to determine the source of the issue.

If you agree, please follow these steps:

1. Log into your TurboTax account
2. Go to Tax Tools
3. Then select Tools
4. 
5. On the pop-up screen select Share my file with an agent
6. This will generate a message that a diagnostic file gets sanitized and transmitted to us.
7. Please provide the Token number in a reply to this post.
8. Include @JohnB5677 in your reply so that I get a notification.

[JohnB5677 · Accepted solution]

We were able to identify the issue.  

If your prior year's AGI was more than 150,000, you'd need to pay in 110% of last year's tax or be subject to a penalty.  

You did not pay 110%, you were short by a small amount.

Please see:  Estimated Taxes: Common Questions How do I calculate my estimated taxes?

Thank you for sharing your file.  We hope this will help you to understand your taxes better.

[Jake2146]

Excellent reply, thank you!  I see now that the instructions for IRS Form 2210 has "special rules for certain individuals".  These extra twists are NOT reflected in IRS Form 2201, so I missed them.  I use the penalty rules to forecast for the coming year, and I specifically withheld to avoid the penalty.  Appreciate all the extra effort to clarify this for me.

[dianabdc]

I paid both withholding and estimated taxes and am getting an underpayment penalty applied. Per IRS pamphlets, if have withholding and estimated totaling 100% or more of last year's liability there should be no underpayment penalty but TT is applying one. So much for 100% accuracy guaranteed by TT.  

[fanfare]

as pointed out above by volvogirl, it's not sufficient to pay one hundred percent.

You have to pay evenly over the four payments.

@dianabdc