The IRS notified me that I underpaid by $49 for the year 2022. They've assessed $904 in penalties and $142 in interest, bringing my total to $1,097 owed. Is this normal?

[alexhansen42-yah]

It seems unfair, or abnormal, that such a small amount, notified over a year later, would result in such high penalties.

[Critter-3]

That doesn't seem correct at all ... read that notice again carefully and seek help if needed.

I GOT A LETTER FROM THE IRS   

https://ttlc.intuit.com/questions/3605673-i-got-a-letter-or-notice-from-the-irs

I AM BEING AUDITED

If you purchased Audit Defense:

https://ttlc.intuit.com/questions/2924451-i-bought-max-or-audit-defense-and-now-i-m-being-audited

AUDIT SUPPORT

https://support.turbotax.intuit.com/irs-notice/audit-support/

[jjmayhof3]

Find your local IRS office and set-up an in-person interview! B e polite but firm that the penalty was caused by issues beyond your control and not a conscious attempt to avoid payment. If all else fails, request a payment plan for the full payment period, 72 months.

Avoid wearing orange or stripes.

[Opus 17]

If you were drastically underpaid during the year, you could owe a significant penalty even though you pay in full when you file.  

For example, suppose you are single with no dependents, self-employed and you expect to earn $100,000 over the course of the year.  You would pay approximately $15,000 in self-employment tax and $17,000 in income tax.  The tax system is supposed to be pay as you go, and if you don't have withholding, you are required to make estimated payments 4 times a year, due April 15, June 15, Sept 15 and January 15.  In this example, you would owe $8000 per quarterly payment.  If you failed to make the payment, you would owe interest and penalties on $8000 for April to June; $16,000 from June to September, $24,000 from September to January 15, and $32,000 from January 15 to whenever you finally paid, even if you paid in full when you filed.  The penalty is 0.5% per month and the interest rate is a variable rate which is currently at 7% per year.

In that example, you would owe $1280 in penalties and $1433 in interest, even if you paid in full when you filed on April 15, 2023.

If we propose a simpler situation, where you have a job but your withholding was just wrong, and you owed $10,000 at tax time, you would owe interest and penalties on $2,500 back to the previous April, $2,500 back to June, and so on.  That would result in $400 of penalties and $466 of interest.  

You will need to review the notice and also consider your tax situation.  Were you under-withheld or under-paid?  Did you pay a lot to catch up at the end of the year?

You can try and contact the IRS for a more detailed explanation although their phone support is not awesome.

If you find you do owe a penalty for underpayment, you can ask for a waiver if this is your first time.  Interest can be waived but it will be recalculated after the penalty is removed.

https://www.irs.gov/payments/penalty-relief-due-to-first-time-abate-or-other-administrative-waiver

[dmertz]

If the bulk of your income came late in the year, you can file Schedule AI (Form 2210) to annualize income and reduce or eliminate the penalty for underpayment of taxes in the earlier quarters of the year.  Otherwise, your income is treated as having been received uniformly throughout the year, requiring that your 90% of your tax liability be paid uniformly throughout the year (unless you qualify for one of the other safe harbors, which seems to not be the case).