Tax Penalty line 38 - 1040SR

[HGE747]

I already e-filed my 2024 1040-SR. After reviewing my printed copy of the 1040-SR I discovered to my surprise a Penalty/Interest charge 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. After some research I now suspect the reason could be because my quarterly estimated tax distributions were uneven. I rolled over a substantial IRA to a Roth IRA in the last week of 2024. Therefore, I increased the last quarter estimated taxes accordingly. Is there anyway to correct this penalty/interest charge. Turbo tax already paid the penalty from my refund. Thanks

[VolvoGirl]

No, but it is an estimated amount.  The IRS might reduce it and increase your refund. 

[SharonD007]

You can contact the IRS to request a one-time abatement of your underpayment penalty. For individual tax returns, call 1-800-829-1040, 7 AM - 7 PM Monday through Friday local time.

For more information, refer to the TurboTax help article Guide to IRS Tax Penalties: How to Avoid or Reduce Them.

[HGE747]

Do you know when the IRS determines the finalized amount? Do I get a notification from them? Thanks

[JohnB5677]

Yes, if you've underpaid your taxes, you will get an IRS tax notice, but the IRS works at it's own pace.  You can receive the notice at any time.

The IRS provide guidance on the Underpayment of estimated tax by individuals penalty.

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 charge a percentage 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.

[SteamTrain]

After the IRS send whatever refund they decide is proper......if the amount they send still indicates they retained the penalty?   Then:

Sometime in (say) May, you could prepare an Amended tax return to see if you can get the penalty partially-or-all refunded......BUT...that is not worth the effort if your penalty was less than ~$50 or so....because it's a lot of work on your part. 

__________________

Do Not start an Amended tax return now...wait until you see what the IRS does...

To amend to see if you could change it (Wait until May), you'd start an Amended Federal tax return.  Then you'd go to the "Other Tax Situations " page and start in on the Underpayment Penalty section.   In there you will need to delineate all Your income, wages, 1099-R, SS, dividends, Interest, Cap gains, deductions, credits for estimated payments, withholding etc...all delineated by quarter...and the "quarters" are uneven and are 3mos, 2mos 3mos, 4mos.  That will fill out an "Annualized Income" form 2210AI, and the associated 1040X for you to e-file. 

(might need to Amend state too....but if you didn't have a penalty there, it probably wouldn't be needed)

So you need all your monthly statements and perhaps a spreadsheet.  TTX tries to lead you thru it, but it's still a bit complicated.  You can go thru it several times as you see what details you need to provide and modify your responses appropriately.

But like I said, if the penalty was small, don't bother...and don't be tempted to touch your tax file for a couple months anyhow.