Underpayment penalty - "Tax Withholding by Quarter" - Sum amount provided is different from my actual withholding for the year. Did I enter something wrong?

[ramseymhilton]

I am calculating my underpayment penalty (I was unfortunately unaware that I was supposed to pay quarterly taxes from my small business income), and I am on "Tax Withholding by Quarter," where I enter my tax withholdings per quarter. It says "the total withholding you enter below must equal X" However, X is quite a bit more than what I actually had withheld for federal, and less than what I had withheld for federal + state. Where did this number come from? I have good data and can enter the quarterly withholdings, but the sum will not align with X.

[MonikaK1]

If you are in the Federal underpayment penalty section, the Underpayment Penalty interview is only asking about Federal withholding and estimated payments. The state will have a different calculation using only state payments. If you are doing the tax withholding by quarter, the "X" should equal all of your Federal withholding from all sources. Check all of the information returns you entered in TurboTax, in case you had taxes withheld on other sources of income such as retirement, interest or dividends.

If you are using a Desktop version of TurboTax, go to Forms Mode and look at the Payments worksheet. This will show the total payments you entered.

For most filers, if your federal tax withholdings and timely payments are not equal to 90% of your current year tax, or 100% of the total tax from the prior year (whichever is less), then you may need to complete Form 2210 to determine if you are required to pay an underpayment penalty.

If your current year total tax minus the amount of tax you paid through withholding is less than $1,000, you are not required to pay the underpayment penalty and do not need to complete Form 2210.

It may help in some situations to go through the Underpayment Penalty section and answer the interview questions. The program will calculate a penalty automatically based on just the amounts and dates paid and the amount of tax due, but the penalty may be reduced depending on your answers to the questions.

The IRS may also reduce an underpayment penalty if any of the following apply:

• You or your spouse (if you file a joint return) retired in the past 2 years after reaching age 62 or became disabled and you had reasonable cause to underpay or pay your estimated tax late. See Waiver of Penalty in Instructions for Form 2210PDF.
• You had most of your income tax withheld early in the year instead of spreading it equally through the year. 
• Your income varies during the year. Complete Form 2210, Schedule AI, Annualized Income Installment Method PDF(found within the form).

The penalty for underpayment of estimated tax can also be removed to the extent that the underpayment is the result of a casualty, local disaster, or other unusual circumstance such that it would not be fair to impose the penalty.

See this TurboTax tips article for more information about Form 2210.

[lnayers]

I have the same issue and don't see that the one response addressed the issue. What is the answer as i cannot move forward until this is resolved.

[ramseymhilton]

In my case, I think the reason was because of my overpayment of FICA/social security.  I switched main jobs in September, and had just hit the maximum FICA contribution before that.  So in my new job, all of the FICA I paid was overpayment, which TurboTax automatically credits toward your federal taxes.  So my Federal tax payment number was equal to my federal tax paid plus my FICA overpayment.

It's all moot in my case at this point, as I am planning to contest the penalty via a first time penalty abatement waiver - not something that  the IRS or TurboTax advertises.  The YouTube video below discusses this, but take it with a grain of salt, as it is just a YouTube video.  Also, I am not a tax attorney, so take my strategies with a grain of salt as well.

https://www.youtube.com/watch?v=jOZ1RAkhpD0&t=267s