Tax Penalty on Line 38 question

[MyTaxQuest]

I already e-filed my 2024 1040-SR and did pay the IRS the whole balance using my bank account during e-filing.  After reviewing my printed copy of the 1040-SR I discovered to my surprise a Penalty/Interest charge of $103.0 on my 2024 Federal Tax Return Summary. While preparing my 2024 taxes on TurboTax I was not informed or directed that there was an issue with an estimated tax penalty.   In 2023, I e-filed my 1040-SR and paid the whole balance on time too, so I don't know where the tax penalty on my 2024 1040-SR came from.   Any advice what I should do? Thanks.

[VolvoGirl]

The penalty on line 38 is included in line 37 or reduced a refund on line 35a.   Nothing you can do about it now.   The IRS may recalculate it and send you a bill for more or send you a refund.   If you had noticed before you filed we could have told you how to try to eliminate or reduce it.

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.  Even if you are getting a refund you can still owe a penalty.

[MyTaxQuest]

I still can’t get it. How do I know I owe or I don’t pay enough? I have been using TurboTax to e-file and pay 100% returns for years on time and never got a penalty until now. Also, there is no explanation/calculation how/where the penalty came from. I received no letters/emails from IRS either. I think TurboTax needs to improve to inform users about the penalty while we are using the software since I didn’t know this until I reviewed the printing after I had e-filed. As such it’s too late to contact TurboTax to know how to eliminate it. Now, should I write to IRS or go see them at a local IRS office to get the answer?

[VolvoGirl]

If you get a penalty on 1040 line 38, 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.

How to add form 2210 for Underpayment Penalty
https://ttlc.intuit.com/community/tax-payments/help/how-do-i-add-form-2210/00/25703

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

IRS Form 2210
https://www.irs.gov/pub/irs-pdf/f2210.pdf

IRS Form 2210 Instructions
https://www.irs.gov/pub/irs-pdf/i2210.pdf

[baldietax]

to avoid an underpayment penalty you need to have paid (either thru withholding or 'timely' quarterly estimated tax payments), either 100% of your tax liability for 2023 (110% if AGI > 150k), or 90% of your tax liability for 2024, whichever is smaller.  This is the 'safe harbor' amount, so you should be able to calculate what that is for your situation.  The actual penalty is based on how much you underpaid vs. the safe harbor amount (not your final tax dues) and is divided up and calculated quarterly so if you were $1000 under the safe harbor it's calculated as underpaid $250 since Q1, $500 since Q2, $750 since Q3, $1000 since Q4 - at an underpayment penalty rate of 8% the math works out to be about $50 penalty in that example.

If you are on TT Desktop in Forms mode you can double-click on the penalty on your form 1040 and again on the 1040 worksheet to bring up Form 2210 which shows the calculations.  This may also be in your PDF with "all forms and worksheets".  You can also check under Other Tax Situations / Underpayment Penalty to make sure for example that TT has the correct 2023 tax figures for this calculation.  This is also where you can adopt the "Annualized Income" method which is useful if you have some large unexpected income event (e.g. ROTH conversion in Q4) and need to make estimated tax payments unevenly - but this can be a lot of extra work and best avoided.

If you had a penalty for 2024 and didn't have any one-off income event or pay estimated tax usually then your withholding may need adjusting, or you may need to be paying estimated taxes in 2025, the deadline for Q1 ES payment is 4/15.  You can work thru this in TT under Other Tax Situations / Form W4 and Estimated Taxes, where you can also provide estimates for 2025 to see if the "90% of 2025 tax" is smaller than "100% of 2024 tax" and figure out if your withholding is enough or ES is required.  By default TT will generate ES vouchers based on "100% of 2024 tax" and assumes your 2025 withholding will be the same as 2024, unless you provide 2025 estimates via the interview process.

Your state likely follows similar process.

Once you figure out the 'safe harbor' for your situation and keep that in mind, it gets easier to figure out what is going on with penalties and withholding/estimated taxes for 2024 filing and 2025 planning.