Still being assessed underpayment penalty when though I paid nanny taxes.

[sjbak]

I've seen a lot of posts where people have complained about Turbotax not reconciling the employer taxes the users have already paid for their nanny's wages with what is getting reported in schedule H. I have followed the instructions to enter in the taxes already paid under "Estimated Taxes".  Doing this seems to mostly negate out any taxes owed, however, Turbotax is still assessing that I have an underpayment penalty of $840... then increases it to $940 when I say I will pay by the filing deadline. It seems that that there is still a disconnect in Turbox between recognizing that the estimated payments made with what is being reported in the schedule H.

One more note, mathematically, it seems that TurboTax is implying that I under paid taxes by $63 (after I enter in my state unemployment tax payments already made). Not sure how accurate that is, or if that actually warrants an underpayment fee 13-15X the amount that is due?

[JohnB5677]

Here are the rules for the income tax penalty.  It doesn't involve the Nanny tax, however that may cause a penalty of it's own.

The underpayment penalty will be assessed if any of these apply:

• "If you don’t pay enough tax through withholding and estimated tax payments, you may have to pay a penalty."
• "You also may have to pay a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return."

To avoid the under payment penalty:

• The amount you owe is less than $1,000, after subtracting withholding and refundable credits.
• You paid 90% of the tax that you owed for the current year.
• You paid 100% of the previous year tax, (110% for higher incomes).
• If your previous year's adjusted gross income was more than $150,000 you will have to pay in 110% of your previous year's taxes to satisfy the "safe-harbor" requirement.

"Typically, underpayment penalties are 5% of the underpaid amount, and they're capped at 25%. 

Underpaid taxes also accrue interest at a rate that the IRS sets annually."

To avoid this situation it is recommended that you adjust your W-4 with your employer or pay estimated taxes.

Underpayment of Estimated Tax by Individuals Penalty

[sjbak]

Based on what you are saying 

1) I should not be paying an underpayment fee.

If the Turbotax calculation is correct,  I've paid 98% of my owed nanny taxes

2) Turbotax then is  clearly is assessing my penalty based on what it thinks I have not paid on my nanny taxes, and is not connecting that the estimated taxes I paid are for the nanny tax.

Amending my W4 would do nothing to solve this now or in the future, as that's based on adjusting my personal income taxes withheld, not what I am withholding from my nanny as the employer or what taxes I've already paid as the employer of my nanny. 

I am still in the same boat... Turbotax is having me pay a an underpayment fee for something I've already paid.

[BrittanyS]

Did you choose the annualized adjusted gross income method.  If you are entering different amounts in each quarter, or leaving a quarter off, it can flag and give the error.  Go back in the program until you see "Annualized Income Method" and select yes.

[sjbak]

To be clear, I am not receiving any "error' per se.  TurboTax is simply not connecting my that my estimated tax payments are related to the wages paid to our hired nanny, and is thus assumming the taxes were underpaid / unpaid and calculating in a underpayment penalty fee.

I am not choosing the annualized income. I am receiving income from my employer on a regular basis.

[BrittanyS]

Did you follow these steps when entering the nanny tax?

As the employer of the nanny, follow these instructions to record the estimated tax payments if you sent them in and plan to include it on your tax return and not through employer tax reporting:

1. In the top right, select My Account,
2. Select Tools
3. Select Topic Search (image attached)
4. Search for nanny taxes  and select GO
5. Continue through the on-screen questions until you reach the Wages and Withholding screen.
6. Continue answering the remaining questions that apply to your situation.

To record the estimated tax payments paid quarterly, follow these steps (include with any other estimated tax payment).

1. In the top right, select My Account,
2. Select Tools
3. Select Topic Search (image attached)
4. Search for estimated tax  and select GO
5. Enter your tax payments for federal and state

Related information:

IRS Publication for review if you choose - Publication 926-Household Employee