The "amount you owe" formula on 1040 line 37...

[Frank nKansas]

In TurboTax "Forms View", Form 1040, line 37 states "Subtract line 33 from line 24.  This is the amount you owe".

However that does not seem to be correct.  Line 37 also includes the "Estimated Tax Penalty" on line 38.

I just received a notice from the IRS stating I still owed $117.  It seems that the "estimated" amount on line 38, $250 in my case, did not fully satisfy my under payment penalty.  Perhaps the $117 does not include an additional penalty.  Rather it is just a correction to the original estimated amount of $250. 

I want to be sure that an underpayment of the "Estimated Tax Penalty" does not result in an additional penalty.  If it does, I'd be inclined to overpay the estimated amount to begin with.  Perhaps doing so would require an "Override" in TurboTax. 

Can anyone confirm or correct any or all of the above?

Thanks!  

[Mike9241 · Accepted solution]

the estimate tax penalty on line 38 is just that an estimate. (don't know if there was a bug in Turbotax) Sometimes the info the IRS has like estimated tax payment dates will differ from what the taxpayer has entered then line 38 is can be too high or too low.

you do have options

1) pay it and do nothing else.

the following options would be to see if you can lower the penalty

2) use the annualized income installment method 

3) if you had withholding use actual withholding for 1/1-4/15, 4/16 -6/15 and 6/16-9/15 and 9/16-12/31

4) both 2 and 3.  

I'm not sure how you can check the IRS calculation vs the one Turbotax did. however, since you are using desktop you can see Turbotax calculations by using the search box for form 2210. Forms>open form>2210. then double click on the form to open it. 

[VolvoGirl]

Yes line 38 is easy to miss.  And it can also reduce a refund on line 35a.  It's only an estimated penalty.  It's common and normal and expected for the IRS to adjust the penalty and bill you for more or send you a refund. 

You can save your return with another name to test in.  Go up to File-Save As.   Then you can fill out the 2210 worksheet.  It's under....

Federal tab or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

If you have the desktop program you can switch to Forms Mode (click forms in the upper right (left for Mac)) and open the 2210 form. If the 2210 doesn't show up in the left column, click on Open Forms at the top of the left column. Type 2210 in the search box and open the 2210 form. 

[fanfare]

If you enter the exact dates of Estimated Tax payments, your penalty can be calculated correctly.

If TurboTax does not ask for the dates, boo on TurboTax.

If TurboTax does ask for the dates, and calculates the wrong penalty, that's bad.

@Frank nKansas 

[Frank nKansas]

regarding @fanfare ... "If TurboTax does ask for the dates, and calculates the wrong penalty, that's bad."

The exact dates of my estimated payments were entered.  I don't understand why TurboTax can't figure out the exact penalty.  Why does TT have to "estimate" the penalty?  Why is it that the IRS is able to calculate the penalty but TurboTax isn't able to?

Do we have any way to calculate what the penalty should be?  Seems odd we aren't able to double check IRS's findings.

[fanfare]

The formula is published on the IRS website.

[fanfare]

https://www.irs.gov/instructions/i2210#f63610i01

Try implementing that in COBOL.

@Frank nKansas 

[mesquitebean]

One could interpret the words "estimated tax penalty" on Line 38 as meaning "penalty for estimated tax" rather than "estimated penalty."   It depends on how you interpret those 3 words.   The IRS instructions also refer to it as "Estimated Tax Penalty" (see image).

.

[VolvoGirl]

I know.    I had a refund once and still had a penalty for not paying in evenly during the year.

[fanfare]

@mesquitebean 

the words "estimated tax penalty"  on Form 1040 do not mean your penalty is being estimated.

It means you underpayed Estimated Tax after withholding.

[Frank nKansas]

On my line 38 of my 1040, "Estimated Tax Penalty", it says $250.  A few weeks later, a letter from the IRS said I owed $117 additional.

Sure seems to me that "Estimated Tax Penalty" means there was a penalty accessed for not paying enough estimated tax.  But in any event, why didn't TurboTax determine I should have paid $367 rather than $250?

Also the formula on line 37 says the amount there is equal to amount on line 24 - amount on line 33.  However TurboTax used the formula for line 37 to be:  amount on line 24 - amount on line 33  + amount on line 38.

??

[VolvoGirl]

See IRS  1040 Instructions for line 38 on page 61

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf 

[baldietax]

Re line 37 comment, TT is just reflecting how Form 1040 is worded, the instructions clarify to add in the penalty.

Seen a couple of posts like this and interested why the different outcome as the calculations on Form 2210 are very clear so I don't see why it would be an 'estimate' of the penalty.  If the IRS is independently calculating a different result, they must have a different 2023 tax liability/AGI, 2024 tax liability/withholding or estimated payment dates.  Was there anything unusual about your return, did you check your Form 2210 to see how TT calculated it, did it use 2023 or 2024 tax for the safe harbor, no confusion between you and IRS on ES payment dates?

[Frank nKansas]

well...  first of all, I don't recall how I determined what my estimated tax payments should have been in 2024.  But, knowing me, I lowered the recommended amounts based on some faulty logic.  (for 2025, I chose the recommended estimated payments amounts... maybe 100%?).

But, no.  I did not refer to 2210.  I just allowed TurboTax H&B to guide me.  I am glad that line 37 did include the estimated tax penalty because I just chose to pay the amount TT told me to pay, which I assumed included any estimated tax shortfall as well as any penalties that were due.  I the only thing I am curious about is why TT didn't tell me to pay the same amount that the IRS determined I should have paid.  

I made timely estimated tax payments.  Income was generally uniform throughout the year.  So I wouldn't say there was anything unusual about the tax year.  Perhaps the only unusual/inconsistent amount of income was end of year RMD's.

For as much money as I pay for the TT software each year (I purchase three versions), I expect to be guided to obtain the same results as what the IRS and State determine.  Situation now is that, while I assume the IRS is correct, and that TT's determinations were faulty, it would cost too much time to verify that.  

[baldietax]

on the ES for 2025, TT will generate vouchers by default based on paying 100% of 2024 tax (or 110% if AGI > 150k) and based on 2024 withholding level, unless you go through the Estimated Tax section and provide estimates for 2025 to figure that "90% of 2025 tax" will be lower 'safe harbor' threshold to meet.  I'm not familiar with H&B myself but I assume that's under Other Tax Situations the same as other desktop versions.

In Forms mode if you double-click on the penalty line in the Form 1040 then double-click it again in the worksheet it should bring up the Form 2210 to show the calculations.  I don't know if there is a way to figure out how IRS came to a different result - TT should be using the same calcs on Form 2210 that the IRS uses, unless one of the experts here can explain what the IRS is adjusting or doing differently.

I am wondering if IRS has different dates for your estimated tax payments which could affect the penalty calculation.  I just checked the payment history under my account for 2024 (on irs.gov), as far as I knew I paid Q3+Q4 ES on time, but IRS has recorded them a day late, so I wonder if that will affect the calcs and I'll get a penalty adjustment.  Making a note to pay a day early for 2025!