How to understand tax penalty rules? Should I pay penalty?

[hughwenla]

I have a questions regarding to tax penalty, my situation is my wife started to work this year so our total income increased a lot, plus this year we used standard deduction(which is smaller than last year as we used itemized deduction), Thus, this year we owe a lot to IRS.
After putting all data into TurboTax, it told me I have to pay penalty. However, I read the rules of the penalty says:
 "Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of 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. "

I definitely had paid 100% tax  than prior year.(even more since me and my wife both paid tax, while prior year she didn't work....).. so I would think my penalty should be waived.

Do I understand right?

[AnthonyC · Accepted solution]

Yes, sounds like you would qualify given your facts.  But, you should walk through the underpayment penalty section in TurboTax.  If you have been assessed an underpayment penalty, then you can see if you may qualify for an exception to the penalty.  You can review the underpayment penalty section by using one of the following two methods  

First, you can perform a search within the program. 

• Log in and click Take Me to My Return
• Use the search icon in upper right-hand corner (magnifying glass icon)
• Search for “underpayment penalty”
• Click the “jump to underpayment penalty” link
• This will take you directly to the section of the program where you can review the underpayment penalty and possibly qualify for an exception

Second, you can use a step by step method of getting to the same place above

• Log in and click Take Me to My Return
• Click Federal Taxes (Personal if in Self-Employed)
• Select Other Tax Situations
• Scroll down to Additional Tax Payments
• Click start/edit next to Underpayment Penalties 

You can also choose to have the IRS figure out your penalty (if any).  Go through the above section for Underpayment Penalty and during that interview, one of the questions will ask if you would rather have the IRS calculate your penalty.  Say Yes, and this will override any penalty TurboTax has calculated.  If you are liable for a penalty, the IRS will send you a bill for this amount later (they will do the calculation themselves).

[hughwenla]

Hi, Thanks for response. I definitely tried to rework the Penalty section but TurboTax doesn't show the rule to judge this.... It just strictly told me the penalty amount, and ask the extra questions, which most don't apply to me. Can I apply to waive? I think if I apply to waive, there is a 2210 form to fill out, right? Does TurboTax prepare that for me automatically when I finish the Federal return?

[AnthonyC]

One of the questions should have asked about your 2017 tax liability - did you enter that amount?  When you enter it, TurboTax compares it to your current year payment and will automatically remove the penalty payment if you qualify for that general exception discussed above.  

[hughwenla]

There is no such questions. It only asked me 2017's AGI, that's it. Is this a bug? What should I do?

[AnthonyC]

Do you get a screen asking for your 2017 filing status?  There should be a screen that asks that, then your 2017 tax liability, then 2017 AGI.  Try clearing your browser cache and go back in and restart that section.  Do you get the question regarding Letting the IRS Bill you later?

[hughwenla]

Thanks. while I was waiting for your answer, I did exactly the same thing as you suggested. I started a new return and jump directly to the section, and found the question.... Now it is all solved. So glad that it proves my understanding to the rules. Thanks.