Additional Tax Due

[kkraze]

After filing my taxes with Turbo Tax and paying what was due in time, I received an additional notice saying I owe more money.  The reason is "Failure to pay proper estimated tax penalty".  Isn't this something that the TurboTax program should have calculated correctly?? 

[MelodyB]

When you have a tax liability when you file your taxes this sometimes means that you didn't have enough tax withheld during the year.  Tax is due when income is earned and not when you file your taxes.  For example if you sell investments which generates capital gains or if you have a rental property you typically don't withhold taxes during the year on that income.  Therefore, when you file your taxes you may be penalized if you have an additional tax liability.  I recommend that you take a look at our W-4 calculator, people find it very helpful.

https://turbotax.intuit.com/tax-tools/calculators/w4/

[awatkins2]

Thank you so much for this question, I tend to get this a lot.   Many Taxpayers do not pay attention to the estimated tax vouchers that Turbo Tax prints for them.  However the IRS requires taxpayers to pay estimated taxes/or increase your withholding if :

1. An individual will owe at least $1,000 in tax after subtracting withholding and credits
2. Withholding and credits will be less than the smaller of :
   1. 90% of the tax to be shown on this year's tax return
   2. 100% of the tax shown on last year's tax return or (your AGI is more than $150,000)

Income from dividends, interest, capital gains, rent, royalties, and self-employment are not subject to withholding so Taxpayers with these types of income MUST make quarterly estimated tax payments.

When you do not make estimated tax payments or have adequate withholding you become subject to a underpayment penalty.  Turbo Tax always asks you if you want the software to calculate your penalty or would you like the IRS to calculate the penalty.   

[VolvoGirl]

Did you have a penalty on 1040 line 38?

If you do not pay in enough tax from withholding and estimates, you may have to pay a penalty for underpayment of estimated tax. Even if you are getting a refund you can still owe a penalty for not paying in evenly during the year. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid 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. It is included in your tax due or reduces your refund.

The amount Turbo Tax calculates (or doesn't) on your return line 38 is only an estimate.
Turbo Tax can not figure it accurately because they don't know exactly when the IRS or state will get your return and tax due payment. It's very common and normal and expected for the IRS or state to bill you for more or send you a refund.

[Lane5]

It can depend on how the underpayment penalty questions presented are answered.

In general, you will owe an estimated tax penalty when the total of your withholding and timely estimated tax payments did not equal at least the smaller of either:

1) 90% of your current year tax, or

2) 100% of your prior year tax.

TurboTax will need to know the prior year filing status, prior year tax, prior year Adjusted Gross Income and the date of when the current balance due will be paid. If that that information is entered correctly then TurboTax will calculate the amount of penalty correctly. If that information is not entered, then the penalty won’t be calculated correctly.

After entering the required information, a question is presented that asks if you want to “Pay it Now” or “Let the IRS Bill Me Later”. If “Pay it Now” is selected, then the penalty amount is included with the balance due. If “Let the IRS Bill Me Later” is selected, then the penalty amount won’t be included with the balance due, and you’ll receive a bill from the IRS for the amount due.

[kkraze]

Turbotax should have all of this as I filed with the the past 5+ years.  So I am still confused as to why I received this bill. 

You said - "TurboTax will need to know the prior year filing status, prior year tax, prior year Adjusted Gross Income and the date of when the current balance due will be paid. If that that information is entered correctly then TurboTax will calculate the amount of penalty correctly. If that information is not entered, then the penalty won’t be calculated correctly."