Form 2210 did not generate but TurboTax software calculated an underpayment penalty

[reblev155]

Couldn't find it using those instructions.  I was trying to figure the 2024 penalty, as TT was telling me that I probably have one.  Once I began the menu options in figuring the penalty I entered the line 38 from 2023's 1040-SR, as I didnt have access to a 2210 at the time.  Then TT told me I didn't have any penalty to worry about.  I filed my return thinking I was OK.

Metrangia gave me the most helpful instructions, to go to the IRS site.  I couldn't find it on the IRS site using the form search function, but I did using the links that he/she provided.  After filing (I was in a hurry), I filled out the 2210 form using the instructions, and it appears I may owe a penalty except I couldn't figure out the Box D instructions in Part II of the 2210.   I have little understanding of this annualized payment and penalty business, and probably should consult a tax accountant next year, as TT's instructions have been very vague at best.    I assume that the IRS will let me know if I still owe or not.  🤔

[baldietax]

sounds like you are borderline for having a penalty, the annualized income method may be overkill this is more for scenarios where you have a significant taxable event and needed to pay estimated tax late in the year (e.g. Roth conversion) and get a large underpayment by default which you can eliminate by showing the timing.  I had to go through AI method in 2024 and plan to avoid it again.

this FAQ is useful https://www.irs.gov/faqs/estimated-tax

Thinking about 2025 planning since the Q1 estimated tax payment is on 4/15, you need to pay evenly and timely (i.e. quarterly by the due dates) thru the year an amount of tax that meets your 'safe harbor' amount, which is either 100% of the tax you paid in 2024 (110% if your AGI > 150k), or 90% of the tax you will pay in 2025, whichever is smaller.

Once you know that amount, divide it by 4 and that's how much you need to have paid each quarter either thru withholding or estimated tax.  You could end up paying the total amount by the end of the year but if it wasn't paid evenly you could have an underpayment in an earlier quarter since the calculation is quarterly and the assumption is your tax liability is incurred evenly over the year regardless of actual timing (hence the issue with Roth conversions in Q4).

Below is an example of a simple underpayment calculation for a situation where the 'safe harbor' is 18k i.e. 4500 due per quarter, and in this case was underpaid in Q1-2 and then overpaid in Q3-4 which generated a small penalty.

Hope this info helps 

underpayment penalty example