Is a tax penalty limited to the amount above $1000 that I owe?

[Richard9]

My tax balance due is $1112, including a penalty for not paying enough during the year. Is the penalty limited to the balance due above $1000?

[VolvoGirl]

I don’t know exactly.  

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

[fanfare]

the penalty on $112 dollars would be much less thatn the penalty on $1,112.

You can test this yourself by making an adjustment to your withholding..

Just remember to put back the real number before filing.

@Richard9 

Report back your findings.

[Opus 17]

The penalty is calculated on the entire amount you are under-withheld.  The $1000 rule is just a "grace period" where they won't calculate it if you come close enough.  But if you don't come close enough, the entire under-withholding is penalized.

Note that the penalty plus interest is about 1% per month, spaced out over 4 quarters.  So if you owed $1000, that means you under paid by $250 in April, $250 in June, $250 in Sept and $250 on January 15, 2025.  So the penalty should be $25 (10% of the April missed payment) plus $17 (7% of the missed payment from June), plus $10 (4% of the missed payment from Sept) plus $5 (2% of the missed payment from January), so $57. Is that close?

And lastly, I would not agree to Turbotax's offer to include a penalty.  Leave it off if you can, and wait and see if the IRS bills you.  The penalty calculation is only an approximation, so even if you pay it, you may get a bill for a couple extra dollars.  If you wait for a bill, they might not penalize you at all, and if they do and it is your first time, you can apply for a waiver.