My wife and I are being "penalized for underpayment of estimated taxes". Why is that b/c almost all our income in on W-2s?

[DanielV01 · Accepted solution]

An underpayment penalty is potentially assessed whenever you owe more than $1000 on the Federal Return.  (You can also have an underpayment penalty on the state return; the threshold for the penalty varies from state to state).  It is often times called "underpayment of estimated taxes" because most people who don't pay enough in are self-employed and should be paying in estimated taxes throughout the year.  But, if W2 employees do not have enough withheld from their paychecks, then they too can be liable for this penalty.

The Tax Cuts and Jobs Act did change the withholdings table significantly, particularly if you are married filing a joint return, because of the increase of the standard deduction.  If you each used the "Married" status on your W4 with your employer, you could very easily have been underwithheld.  You see this penalty because you owe more than $1000 on the Federal return or greater than the threshold amount for your state return.

For more information, please see this TurboTax website:   Here’s how to determine what you need to pay and when.