Underpayment Penalty incorrectly calculated

To reduce or possibly even eliminate your underpayment penalty,  search for annualizing your tax (use this exact phrase) inside TurboTax. This will take you to the underpayment penalty section and we'll take you through the steps to possibly reduce your underpayment penalty.

• (If you don’t see Jump to annualizing your tax in the search results, make sure you’re in your return and not on the Tax Home page.).

Generally, most taxpayers will avoid this penalty if they either:

• owe less than $1,000 in tax after subtracting their withholding and refundable credits, or
• if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller. 

Thank you! So I have to annualize to not get an underpayment penalty? Turbotax doesn't seem to suggest that annualizing is required. I know that I qualify to waive the penalty under the "paid 100% of the tax shown on the return for the prior year" case you list. Turbotax should also know this since it has my last year's tax liability. Why does it still think I have a penalty?

If I must annualize, none of my tax documents offer the annualized totals, just the yearly amounts. Do I have to go back and calculate all of my income per quarter manually?

Yes, annualizing is a PITA, since you need to go thru your income records and break everything down by Qtr, even while your year-end tax forms don't show any kind of breakdown.  It's painful enough, that if the penalty is small, I don't bother for any penalty under ~$50  (but that's my personal pain limit ).

The issue with including the Estimated payments along with the withholding, for exceeding a certain % level to eliminate the penalty.  That really depends on whether all the Estimated payments were exactly the same $$ amount, or were uneven.  For example:  the first 3 payments being $500 each, and the last one being a $million (and getting a huge refund ), that  may in total go over the 90/100/110% limit, but unless you run the full annualized income calcs, one may still be considered to have underpaid the first 3 qtrs.....since all income is considered to be gained evenly until you annualize to indicate exactly when each $$ was received.

((((AND....I have absolutely no idea how the allowed delayed estimated payments, and quarterly estimates are properly to be dealt with, along with the 2020 income quarterly annualizations.....is it all a first half together, and the last 2 qtrs separately..... or what?....that's a muck-up for doing the 2020 annualizations....maybe someone else knows far better than I do))))

Thank you for explaining the quarterly aspect! I did pay the same amount each quarter, though, so in terms of being 110% of last year's tax yield it should all be good right? I am wondering now that you mentioned the 2020 circumstances though, I think I paid Q1 late because 2020 was the first time I've ever had to pay estimated taxes, and I did my return late due to the pandemic. Perhaps that's where the late fee is coming from?

In any case though why is my underpayment penalty $448 which is way more than it should be (3.398% of the difference between what I paid over all and what I owe according to the internet, which is about 12k according to turbotax).

Basically is there a way to see how turbotax is calculating it? Is it a late fee + interest, or are they not taking my estimated tax payments into account somehow? Everyone else I know has penalties of about $40, nothing near as high as me. 

also, try this.... did you enter two payments made prior to 7.16.20? if so, combine them into one line.... the form doesn't calculate correctly if there are two payments prior to this date.  payments prior to that date do not drive interest as they are early, so combine them. 

Ahhh, I thought the $448 was the amount you owed....not the actual penalty. 

.....not always easy to see the penalty tax calculations when using the Online software, since, if the default calculations are used, the form 2210 may not appear.....while those of us who use the Desktop software can always force the display of the form 2210.

You can go to the Print Center, and download all your forms and worksheets to a PDF file, and see if it's there  (you'll have to pay for the software, if you haven't already).  And if it's not there, then you'd need to go thru some of the Underpayment Penalty interview steps again on the Other Tax Situations page, and try the withholding when paid steps first...that might force the 2210 without messing with doing a full annualized income.....but you would need to know amounts&when of actual Federal withholding was done for whatever tax forms you do have entered.

(Of course, perhaps try @NCperson   's suggestion too)

Ah ok cool. So yeah I've been seeing the "you may elect to treat the tax withheld as paid when it was actually withheld" part in the underpayment penalty section. What's the different between electing Yes vs No to this question? I was always choosing yes (and then putting in the amounts I paid each quarter which is the same as what I put in the withheld taxes in the tax credits section, I'm realizing now maybe I should have put my total taxes withheld including W2 and my own estimate payments. But how would I know my W2 withholdings by quarter?), but maybe I should be doing No instead and it would do the default calculation?

Now it seems to be messed up and thinking I want to annualize even though I've answered no to that question so I might just be out of luck.

unless your chose that option, the underpayment penalty presumes all income is even through the year.

but for example, let's say you had little income for 3/4 of the year but sold stock in December for a very, very large gain.  You'd want to do the quarterly approach because you had no income for the 1st three quarters and no estimated tax liability. 

if you stick with annual approach in my example, the IRS assumes that stock same happened evenly over 4 quarters and therefore to avoid underpayment penalties, it would have expected you to pay the estimates each quarter. 

make sense?  

You can try the No for the withholding  but that may get rid of your form 2210 if you wanted to see what was in it

(And NO, you cannot combine your "estimated" tax payments with the withholding.  the software is supposed to use the dates and amounts you actually entered for your estimated payments, and adds them in where needed).

______________________________

Another thing to make sure of, is that you have accurately entered your actual 2019 tax liability and 2019 AGI.  IF you transferred in your 2019 tax file to start this year's forms, the correct numbers were in there...but if you stared with a blank file where you hare entering everything entirely form scratch, then you need to look at your actual 2019 tax forms to see what's there.

So I decided to just go ahead and pay the penalty and hope the IRS would refund me and moved on to the Federal Tax Review. There Turbotax asked me to amend some of the forms, one of which was the 2210. Now that I can finally see it, I can see Turbotax
1. Isn't adding my estimated payments at all (Line 12)
2. it's also still assuming I wanted to do the "paid when withheld" AKA Part II checkbox D even though I've gone back and said No to that in the underpayment section (and now realize I shouldn't be doing that at all)
3. still assumes I want to annualize after I clicked that once by mistake but have since gone back to say No for that as well. 

How do I get Turbotax to reset my selections for 2&3 and how do I get it to add line 12 with my estimated payments? When they ask me to review the form I can't edit the boxes/checkboxes I want, it just wants me to edit Part II line D with the "correct" amount, even though I just want to uncheck box D altogether.

Don't know how the Online people can best deal with it...

IF....if you haven't actually filed yet, you could use the <Tax Tools <<Tools menu to go in and Delete the form 2210 entirely.  It might regenerate, but that would reset your prior selections even if it does regenerate.  IF you see a 2210AI too, you'd delete that first, then the 2210  (I think) .

But beyond that, I'm not much help with those forms since I've avoided filling them out in the first place for too many years

https://ttlc.intuit.com/community/using-turbotax/help/what-is-the-turbotax-phone-number/00/25632

I have a similar question and I don't understand there solution that was given.

My situation is the I overpaid 2019 taxes, so the overpayment was applied to the 2020 taxes.  So regardless of how I paid or earned in 2020, I should not have to pay an underpayment penalty since I paid 100% of 2019 taxes.  Line 8 on 2210 doesn't show 90% of 2019 but 100%.  Where do I look to correct this?

I have had this problem with TT for several years.  I always pay estimated tax that is in excess of last year's tax paid.  The first year it happened to me I paid it because it slipped through the cracks and I didn't catch it.  Since then it has happened several times but not always.  This year it says I owe $2 penalty.  All estimated payments were made on time or early and the total was in excess of the amount of tax paid last year.  The annualize step should be unnecessary since the IRS rule was followed.  I have had several CPA verify that no penalty was due.  

Why do I need to check this simple step for Turbo Tax every year?  What can be done to avoid it besides doing the extra work of the annualization?

@sljones3006

Please send us a redacted copy of your tax return. If you follow the process below, the system will "redact" all the personally identifiable information in your return and then give you a "token" which is a number that identifies your redacted tax return in our database.

To send us a token, please do the following: 

TurboTax Online:  

Click Tax Tools in the menu to the left.

Click Tools, and then

Click Share my file with Agent.

A pop-up message will appear. Click OK to send the sanitized diagnostic copy to us.

Provide the token number that is generated onto this thread.

TurboTax Desktop:

Select Online menu if the customer is using Windows. Select “Help” if using a Mac.

Select Send Tax File to Agent.

A pop-up message will appear, and the customer will select, Send. If using Mac "Send Tax File to TurboTax Agent" 

Note: Desktop will save a file to your computer unless you uncheck the box.

Another message will appear. Provide the token number that is generated onto this thread.

At the bottom of your reply (with the token) add "@" "BillM223" (without the space in between) so I will be notified.

This will let us see what is happening on your return. Thanks.

I have the same issue this year. I paid more in deductions and estimated taxes than 2020 tax, both federal and CA and TT is hitting me with underpayment penalty for both.

When entering your Estimated Taxes paid, try using the pre-filled in quarterly dates and just enter the amounts you paid each quarter.

If you're using TurboTax Online, you could delete Form 2210, close TurboTax, clear your Cache and Cookies and go back to the Estimated Payments section.

Here's more info on Underpayment Penalties.

Is there a new search term to use for TY2022? "annualizing your tax" no longer finds anything in TT.

I paid more than 100% of last year's tax. I paid more than 90% of this year's tax. I owe less than $1,000. I retired partway through the year, and by my back-of-the-envelope calculations, I've been up-to-date with taxes throughout the entire year, yet Turbotax Premier MacOS says I owe a penalty. Very frustrating!

If you type in Underpayment Penalty in the search box on your TurboTax screen you should get the jump to underpayment penalty option you are seeking. You not only need to pay in the correct amount of estimated tax, but you need to do it quarterly on a timely basis. It is possible that the dates entered for your estimated tax payments is what is resulting in your late payment penalty.

Thanks @ThomasM125 ! I was typing it in the "Search" box that unfurls at the right side of the menu bar, *not* the "Search Topics" button. Guess I needed more coffee. Now I need to play around with the annualization to see how much work I want to do to reclaim my $35.

Hello @ThomasM125 .  I'm having a similar problem with possible inaccurate Underpayment Penalty.  I "finished" my return but haven't filed of course until I have this checked out.  I owed $106 in 2022 which was understandable and fine.  For 2023, TurboTax Online is calculating $3322 and not requiring Form 2210 to be filed.  Therefore, I'm having difficulty determining how this penalty was calculated without seeing the form.  I'm willing to share a redacted copy of my return to help.  Let me know if you have questions for me.  Thank you very much.

@js409   The underpayment penalty is just an estimated amount.  

You might be able to eliminate it or at least reduce it. You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you. It's form 2210.

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

It depends.  If your income is received evenly throughout the year, then annualizing may not be useful.  The IRS allows all tax withheld during the year to be considered as paid evenly throughout the year, regardless of when paid/withheld.  However, if you paid any estimated tax payments they are considered only on actual payment dates.

Vested stock and your bonus can both contribute to this year's penalty increase.

In your situation, it's quite possible to have an underpayment penalty for two reason. The amount of the underpayment penalty depends on the tax due.

1. The withholding on your pay checks is not enough, and
2. There was an increase in the income that does not have any withholding and estimated tax was not paid or not enough was paid to cover this income.

Annualizing your income will not be helpful if you did receive all of your income evenly.  It does help those who have a high amount of income in the last quarter of the year.

Penalty Reasons:

Generally, you can avoid the penalty if your total timely estimated payments and withholdings are greater than or equal to the lesser of:

• 90% of the total tax after credits for the current year, or
• 100% of the total tax after credits in the prior year
• See one exception below.

You can also avoid the penalty if the amount you owe is less than $1,000 as long as any estimated tax payments you made are timely.

Note: High-income taxpayers. If your adjusted gross income (line 11 of your 2023 Form 1040) is greater than $150,000 (or $75,000 if you're married and file a separate return from your spouse), you can avoid a penalty by paying at least 110% of your total tax from the prior year.

@js409 

[Edited: 03/25/2023 | 6:48 AM PST]

@DianeW777   Appreciate your valuable input.  Yes, salary is received evenly throughout the year.  However, vested stock and bonus were first quarter with standard taxes taken out though.  I have NOT paid any Estimated Tax Payments like on the beginning pages of the Tax Return.  Do you actually recommend it?  I was always ok having a balance due for Federal as I saved for it.  Avoiding the $3322 penalty is worthwhile though.

Can dividend and interest income affect an Underpayment Penalty significantly too?

Would 2022 income (w/ $106 Underpayment Penalty) also affect the 2023 Underpayment Penalty amount?

You mentioned:

"Note: High-income taxpayers. If your adjusted gross income (line 11 of your 2023 Form 1040) is greater than $150,000 (or $75,000 if you're married and file a separate return from your spouse), you can avoid a penalty by paying at least 110% of your total tax from the prior year."

How do you go about paying $110%+ of your total tax from the previous year?  Through Estimated Payments with values higher than the four quarter Tax Return recommends maybe???

Thank you!