penalty for not withholding enough tax

You may be able to eliminate or reduce the underpayment penalty by processing IRS form 2210.

 

The penalty is computed on IRS form 2210 and can be computed by the regular method or the short method.

 

Follow these directions to access the interview questions: 

 

• Down the left side of the screen, click on Federal.
• Down the left side of the screen, click on Other Tax Situations.
• Scroll down to Additional Tax Payments, click the down arrow.
• Click Start/Revisit to the right of Underpayment Penalties.

Thanks so much! Will try and see how it goes.

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Taxes must be paid as you earn or receive income during the year, either through withholding or estimated tax payments. If the amount of income tax withheld from your salary or pension is not enough, or if you receive income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, you may have to make estimated tax payments.  If you are in business for yourself, you generally need to make estimated tax payments. Estimated tax is used to pay not only income tax, but other taxes such as self-employment tax and alternative minimum tax.

 

When you prepare your 2023 return, we'll automatically calculate your 2024 estimated tax payments and prepare 1040-ES vouchers if we think you may be at risk for an underpayment penalty next year.  You can also calculate your 2024 estimated taxes and generate the payment vouchers by doing this:

 

1. With your tax return open, search for 1040-es (be sure to include the dash) and select the Jump to link.
2. Answer No to the question Do you want to change your W-4 withholdings for 2024?
3. Answer the questions about things like your 2024 filing status, income, and deductions.
4. Eventually, you'll come to the Print Vouchers? screen. Answer Yes and we'll include your 2024 1040-ES payment vouchers when you print a copy of your return later.

 

You may avoid the Underpayment of Estimated Tax by Individuals Penalty if:

 

• Your filed tax return shows you owe less than $1,000 or
• You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less.

You can search for penalty, use the Jump to penalty link, to revisit that section.   You will have the option to annualize your income, let the IRS bill you later for the penalty (there is a box to check to select this option), or include a request for waiver.   While the penalty for underpayment of estimated tax generally cannot be waived for any such reason, we may reduce a penalty if any of the following apply:

 

• You or your spouse (if you file a joint return) retired in the past 2 years after reaching age 62 or became disabled and you had reasonable cause to underpay or pay your estimated tax late. See Waiver of Penalty in Instructions for Form 2210.
• You had most of your income tax withheld early in the year instead of spreading it equally through the year. Complete Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts.
• Your income varies during the year. Complete Form 2210, Schedule AI, Annualized Income Installment Method (found within the form).

The penalty for underpayment of estimated tax can also be removed to the extent that the underpayment is the result of a casualty, local disaster, or other unusual circumstance such that it would not be fair to impose the penalty.

 

• If you think you qualify for a waiver of the penalty under any provision explained above, please send your written explanation, signed under penalty of perjury, to us at the address at the top of this notice.   You can do this in TurboTax.    

 

Thanks, Dawn, appreciate the level of detail. Wish I could say that TurboTax did all that but alas not, hence the underpayment penalty which should not have happened. Many thanks again for what you wrote. Hope to get it right this year!