Why does my return say I need to make estimated payments for 2020 when I'm due a $1000 refund for 2019?

[rkierski]

I have a similar situation... my numbers are different.  I owe $300 Federal and TurboTax is saying I need to pay estimated taxes in 2021.  I don't see anything in any of the IRS forms that indicates that the IRS thinks I need to pay estimated taxes in 2021.

Why does Turbo Tax say that I need to pay estimated taxes if I only owe $300 with my 2020 return?

[JotikaT2]

You may have had an underpayment penalty that was generated with your return.

The underpayment penalty is calculated if you do not have enough withheld in income taxes throughout the year as you earn your income. 

You can try to reduce your underpayment penalty by following the tip at the bottom of the link below.  

Underpayment penalties

Also, the vouchers are generated to ensure you pay enough in throughout the year as you earn your income.  If you have withholdings from wages, you can always adjust those through your employer to ensure you have enough withheld in taxes throughout the year to ensure taxes are being withheld in accordance with any income earned.

Updating W-4 Withholding form

@rkierski

[rkierski]

Sorry... I should have been more clear.

I didn't owe a penalty.  When I was saying I owed only $300... I was attempting to say that I owed very little compared to the taxes I had withheld -- about $45,000.  Also, line 38 of my return is blank which indicates that I didn't have a penalty for under payment.

And, this is the first time, in many years, that I'm not getting a refund.

My understanding is that I would only have a penalty if the amount I owe is more than a certain percent of my tax burden.  And I would only have to pay estimated payments if I have a penalty.

Are there other reasons I might have to start paying estimated quarterly taxes even though it seems I have a significant amount taken from my paychecks?  Both my wife and I claim 0 and single on our W-4.

Also... TurboTax is saying that I need to pay over $2000 quarterly -- Almost $10,000 total.  That seems crazy high given the small amount that I owed.  I expect that if I make those quarterly payments... I will get a huge refund next year.

[JeffreyR77]

It depends. 

There are many factors that could change from 2020 to 2021 prompting a change in tax withholding to avoid having a balance due next year.

For example, one of your  dependents might no longer be eligible for the $2000 Child Tax Credit your received this year. 

You may have received other tax credits this year that will not be available next year.  

[VolvoGirl]

Turbo Tax is very conservative and doesn't want you to owe too much next year. If you are receiving a refund or low tax due and Turbo Tax prepared the vouchers then your tax liability was probably reduced by credits. They might have printed out if you got a one time large income this year like if you took a IRA or 401k distribution. They are optional to pay and do not get sent with your return so the IRS won't be expecting them.

[rkierski]

@VolvoGirl , thanks.  I think that was the information I was looking for.

I did have an extremely large one-time income.  I changed employers and rolled my 401(k) to my new employer.  That resulted in a lot of non-taxable income.  For whatever reason, the rollover was reported as non-taxable income.

But thanks for letting me know that the payments are optional.