I owed $35 in 2022 1040 37; overpaid $552 in 2023 1040 34 but penalted $40 in 38. Why?

[swang999]

I owed $35 in 2022 1040 37; overpaid $552 in 2023 1040 34 but penalted $40 in 1040 38. Why?

[VolvoGirl]

it's not for filing or paying late.  It doesn't have to do with last year's tax return or not paying estimates for this year.  The penalty is an "estimated" amount.    It's a penalty if you owe too much or for not paying in enough withholding during the year or not paying in evenly.  It's very common and normal and expected for the IRS or state to bill you for more or send you a refund.

You might be able to eliminate it or at least reduce it.  You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you.  It's form 2210.

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

[BillM223]

The US has a pay as you go system. That is, you need to have paid most of your tax by the end of the year. In addition, you need to have paid your tax in quarterly installments in accordance with your income.

Do you have a form 2210? Does Part III show a penalty computation? If so, it is possible that you would benefit from the Annualized Income Installment Method (see Schedule AI on the 2210).

[swang999 · Accepted solution]

Yes, the $40 penalty is removed after I did Form 2210. I wonder if Turbotax automatic program know I had got $40 penalty without Form 2210? Why it didn't automatically lead me to do Form2210?  It spent me 3 days to solve the problem. Is it a bug of Turbotax?

[MonikaK1]

For most filers, if your federal tax withholdings and timely payments are not equal to 90% of your current year tax, or 100% of the total tax from the prior year (whichever is less), then you may need to complete Form 2210 to determine if you are required to pay an underpayment penalty.
 

If your current year total tax minus the amount of tax you paid through withholding is less than $1,000, you are not required to pay the underpayment penalty and do not need to complete Form 2210.

It may help in some situations, such as it did in yours, to go through the Underpayment Penalty section and answer the interview questions. The program will calculate a penalty automatically based on just the amounts and dates paid and the amount of tax due, but the penalty may be reduced depending on the answers to the questions.

See this TurboTax tips article for more information about Form 2210.