Response on State Tax Return - "Underpaid"

[bella444]

Hello! We used TurboTax to file our federal and State (Hawaii) tax returns this year. In an effort to both understand our situation and to help TurboTax assist its customers, our question is this: We took a lump sum distribution this year from an IRA and received a 1099-R. We paid the federal tax at the time of the distribution, but did not pay any state tax, the thought being that we would pay it on our return the following year. We made our tax payment to the State and received a letter recently from the State indicating that we have underpaid our state taxes, now owing more tax and incurring a penalty. We have yet to receive further information from the State on what additional tax is owed, but they referred us to complete a worksheet and we calculated that we owe another $241. I think the lesson learned is that in the future we will pay tax on both state and federal at the time of distribution, but our question is why did TurboTax underestimate our State tax due? We have had no problems in the past when using TurboTax for our federal and state returns and want to have continued confidence in using TurboTax in the future. 

[RobertB4444]

It sounds like you were hit with a failure to pay estimated taxes penalty.

Because you didn't withhold the state taxes from your payout the Hawaiian government had to wait to receive their money until you filed your return.  Taxing authorities tend to prefer to be paid at the time money is earned rather than when you file your return so they expect you to pay earlier.  That is why they take money out of your paycheck and why people make estimated payments.  In your case, by waiting to pay, you incurred an additional fee from Hawaii of $241.

@bella444