How does TT estimate the underpayment penalty?

[tk94110]

On 1040, line 37 reads "Subtract line 33 from line 24". But the TT filled a different amount, more than the subtract amount. The amount filled was the difference plus the value on line 38 "Estimated tax penalty".

I am guessing this is the proper practice although it is not strictly following the instruction on line 37.

My question is where the estimated tax penalty is calculated. Does TT calculate behind the door using a magic formula? A google search says it is calculated on "form 2210, line 19", but no such form is generated by TT for my tax return.

[KeshaH]

TurboTax calculates the underpayment penalty on Form 2210. Are you using the TurboTax Online program or TurboTax Desktop?

[baldietax · Accepted solution]

the verbiage on Form 1040 for Line 37 is a bit misleading but it's covered in the IRS instructions to include the penalty from line 38 so this is all standard.

if you are on desktop in Forms mode double-click on the penalty then double-click on the penalty in the 1040 worksheet to bring up Form 2210 which will show the calculation.  not sure equivalent for TT online but presumably the form is included in the PDF with "all forms and worksheets".

[tk94110]

I'm on the desk top version. I asked this question because I couldn't spot the form 2210 in the list of forms. But I could find by double-clicking the number.

[KeshaH]

Did the Form 2210 calculation make sense or would you like for us to take a look?

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 and have your amended return open,

- 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 other states that are included on the return.

[tk94110]

Thank you very much.

I was able to go the the form that is calculating the estimate amount.

So, it looks like IRS wants us to pay the estimate tax evenly even though we don't know how much in advance, and penalize us for not seeing the future, it looks like. The transactions that resulted in a higher than anticipated income was in the thired quarter. and that's why I paid most of the estimate tax in Q4. (No need to respond. I'm just complaining about the tax system. I know TurboTax didn't make it 🙂 )

[baldietax]

yes it works best when you're able to use prior year tax for the estimated tax payments rather than 90% of the current year, as everything from prior year is known and it doesn't matter what unexpected income you get or when.

But, IRS allows for uneven income and estimated tax payments instead of even quarterly payments, by allowing you adopt an annualized income method on Form 2210 where you can lay out your AGI vs. the estimated payments to reduce/eliminate the penalty.  You would need to provide cumulative AGI, Long Term Cap Gains/Qualified Dividends thru 3/31, 5/31, 8/31 for this method.

Under Other Tax Situations / Underpayment Penalties, you can go through the interview process to see if it reduces/eliminates the penalty and then adopt this method.