Possible bug in California Underpayment of Estimated Tax Safe Harbor Rule

[cbsbug]

2024 TurboTax Home & Business Windows calculated that I owe about a $600 penalty in underpayment of California tax if I pay on April 15, 2025 or about $100 if I pay on February 15, 2025. By my calculations, I don't owe a penalty because I qualify for the Safe Harbor rule of paying 110% of the prior year's tax in withholding and estimated tax. I examined the worksheet that TurboTax filled out, and it doesn't seem to include my estimated tax payments. It only asked for the amount of my withholding. Therefore, it says I don't qualify for the Safe Harbor rule. This looks like a bug to me. My solution is to not have TurboTax calculate the penalty and let the State of California calculate the penalty. I will file as soon as possible to minimize any possible accrual of interest penalties. And no, I do not want to upload my tax return to have Intuit TurboTax people look at it. I couldn't find anywhere on the website to report bugs, unless I actually suffer a loss due to the bug.

[AmyC]

Estimated payments must be entered in the federal section to carry over to the state. Where do I enter my estimated tax payments?

[cbsbug]

I entered our California estimated tax payments in the federal section. They don't appear to be taken into account by the California underpayment of estimated tax worksheet when computing the Safe Harbor rule.

[KeshaH]

If you'd like, we can look at your return and see exactly what you see to  help come to a resolution. The return will be scrubbed and won't include any of your personal details.

If you're using TurboTax Online:

Once you're logged in to your account,

- on the left hand panel, click on Tax Tools and then choose Tools

- on the pop up window, select Share my file with Agent

- you'll see a message saying you'll give us a copy of your tax return. Your personal information will be changed so we can't see any private information.

- click okay and you'll get another message with a token

If you're using TurboTax Desktop:

• Click on Online in the top menu of TurboTax Desktop for Windows
• Select 'Send Tax File to Agent'
• Write down or send an image of your token number and state then place in this issue.
• We can then review your exact scenario for a solution

Please reply to this message with your token so that we can further assist you. Let us know all the states, if any, that are included on the return.

[lmsmes]

You to get out of the forms section, and go to the interview, underpayment of estimated taxes.  There, you will be able to enter last year's tax.   It can then calculate the underpayment penalty correctly. 

[cbsbug]

Here is my follow up:

I filed and paid the 2024 California return by February 15, 2025. A while later, I saw that the California Franchise Tax Board (FTB) web site listed that we owed an additional $105, but there was no notice listed. I phoned the FTB fairly late in the day and was told to try again later. I called in the morning on another day and there was a call-back feature. They called me back about 2 hours later. They told me that a notice had just been mailed out that day. They said that the $105 was for underpayment of estimated tax, because I had underpaid in the first two payments. The payroll withholding for the year was less than I expected, so I had made up for it with an extra-large estimated tax payment in January 2025. The total amount of estimated tax payments and withholding were enough for the Safe Harbor Rule, but I had underpaid in the first two payments, so there was an underpayment penalty. I had until April 15, 2025 to pay the penalty before more interest would accrue, so when the notice arrived in the mail, I paid the penalty on ftb.ca.gov. 

The $105 penalty calculated by the State for paying in February agrees with what TurboTax said, so apparently TurboTax was picking up the withholding and estimated tax payments, after all. The $600 penalty that TurboTax calculated if I had filed and paid the taxes owed on April 15 sounds too high to me.

[MonikaK1]

California calculates the underpayment penalty on the unpaid amount from one of these (whichever is earlier:(

• The due date of the estimated tax installment to the date they receive your payment
• The due date of the tax return

Visit Individuals due dates for the due dates.

The number of days late is first determined, then multiplied by the effective interest rate for the installment period. Visit interest rates for more information.

To avoid this in the future, increase your withholdings or make quarterly estimate payments. 

In the future, if you see an underpayment penalty on your state return, go to the Underpayment Penalty section in the California interview (it may only appear if TurboTax calculates a penalty). There, you can answer the questions to determine if there is a basis to reduce or eliminate the penalty.

Because various items of income and deductions are treated differently by the IRS and the states, you can input changes for your state estimated taxes in the state section of TurboTax. 

The California section, Estimated Taxes for Next Year under Other Forms, provides entry screens with information about your 2024 Federal and California income, and an entry field for 2025 estimated income, as well as entry fields to estimate deductions and credits, including California credits such as the Renter's Credit. It also provides a radio button for you to indicate whether you expect to have itemized or standard deductions. Many California taxpayers are able to itemize on their state return even though they couldn't on their Federal return.

@cbsbug