How does the IRS know to charge you a penalty for lack of withholding if your income is uneven during the year?

[fanfare]

The rules I described are for the simplified (default) calculation of Form 2210.

It does not involve annualized income installment method (Schedule AI)

Perhaps I did not make that clear.

@crash345u 

[crash345u]

fanfare's posts below makes sense regarding withholding.

I'm still struggling with VolvoGirl's response. I see exactly where the "Underpayment Penalties" section is based on her helpful first post. The problem is I entered into TT a simple test case tax return where there was $50K of Interest income and a single estimated tax payment in Q4 of $2700. TT calculated a refund of $16. When I start the "Underpayment Penalty" interview, I get the message below saying there was "No Underpayment Penalty". How can TT know there is no underpayment penalty if it doesn't know what quarter the interest was earned in? I certainly would have expected an underpayment penalty since the tax was over $1000, even though there was a refund.

Sorry, maybe I'm being thick, but this does not make any sense. It could all be earned in Q1 and there would therefore be a penalty. TT is not prompting for any questions that would lead to a F2210 calculation.

This is exactly the situation VolvoGirl described below where she had a refund but owed a penalty. I would really like to understand why TT is not calulating an underpayment penalty in this specific test case.

No Underpayment Penalty

Based on your entries you don't have a penalty for underpayment of estimated taxes.

Do you want to review the estimated taxes topic?

[ThomasM125]

Your scenario may not work because to determine a late payment of tax penalty, you would need to know the tax from the previous year. If you are working with a new tax return, not one carried over from the previous year in TurboTax, the program may assume your tax from the previous year was $0, in which case no estimated tax would be due even if the tax due at time of filing is more than $1,000. 

@crash345u 

[crash345u]

ThomasM125 That's an excellent suggestions to explain why TT does not assess a penalty.

But it also appears to be a "bug". If TT does not have an explicit entry for last year's tax , it should ask and at the very least open a dialog box for the user to verify and correct if necessary. 

[ErnieS0 · Accepted solution]

TurboTax carries your 2021 info into your 2022 return so it knows your 2021 filing status, income, tax liability, and other information, as does the IRS.

If you do owe an underpayment penalty, TurboTax will ask you to confirm this information (or enter it if you did not use TurboTax in 2021).