Underpayment Penalty incorrectly calculated

Forum|Forum|5 years ago
April 5, 2021
2 replies
3 views

I filled out the underpayment penalty section in Turbotax and it says I owe around $400. But I paid estimated tax payments quarterly last year and I calculated 110% of last year's liability (based on the number Turbotax shows me in that section!) and my total withholding is over that number. Why does Turbotax still say I owe an underpayment penalty?

At first it was even higher because it didn't ask me about the estimated payments - after adding those it reduced down, but is still very high. It seems I can't see form 2210 directly, so I don't know how it's calculating this. Yes my total tax withheld is less than 90% of this year's taxes, but supposedly if you pay 110% of last years (which I did between my W2 withholdings and my own estimated tax payments) the fee should be waived. How do I get Turbotax to take this into account?

@Mocha42

TurboTax Premier Online

HelenC12

Level 15

To reduce or possibly even eliminate your underpayment penalty, search for annualizing your tax (use this exact phrase) inside TurboTax. This will take you to the underpayment penalty section and we'll take you through the steps to possibly reduce your underpayment penalty.

(If you don’t see Jump to annualizing your tax in the search results, make sure you’re in your return and not on the Tax Home page.).

Generally, most taxpayers will avoid this penalty if they either:

owe less than $1,000 in tax after subtracting their withholding and refundable credits, or
if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.

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Mocha42

Level 2

Is there a new search term to use for TY2022? "annualizing your tax" no longer finds anything in TT.

I paid more than 100% of last year's tax. I paid more than 90% of this year's tax. I owe less than $1,000. I retired partway through the year, and by my back-of-the-envelope calculations, I've been up-to-date with taxes throughout the entire year, yet Turbotax Premier MacOS says I owe a penalty. Very frustrating!

js409

Level 2

@js409 The underpayment penalty is just an estimated amount.

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

@VolvoGirl - Thanks for the quick reply. I have visited the "Other Tax Situations" and "Underpayment Penalties" section many times. (I even "Clear & Start Over" my entire return with the same penalty result). I do not "Annualize Income". I do not think I should treat "Actual Withholdings" as paid in four equally quarterly installments vs withheld either (?). Haven't in the past. I have a W-2 that takes withholdings throughout the year (twice a month) and a varying bonus (w/ withholdings) that can fluctuate. Some dividends that are higher is year and have some vested company stock. Very similar to last year where I only paid $106.

coolie740

Level 2

I have a similar question and I don't understand there solution that was given.

My situation is the I overpaid 2019 taxes, so the overpayment was applied to the 2020 taxes. So regardless of how I paid or earned in 2020, I should not have to pay an underpayment penalty since I paid 100% of 2019 taxes. Line 8 on 2210 doesn't show 90% of 2019 but 100%. Where do I look to correct this?