I checked out my IRS account. I owed $34 underpayment penalty evidently in the 2023 tax year. This was also reported on my IRS account transcript from 2023. This year the same underpayment penalty has jumped to $394. All unknown to me. Is this normal? Is the interest that high? Or is this a TT glitch of some kind? And why did I not get a 2210 in the forms from 2023, if I owed an underpayment penalty? I used the online version. My thinking at this point is to start using a professional tax account, and stop using TT.
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Underpayment penalties are very common. The IRS interest rate on underpayments is currently 8%. It increased from 7% beginning with the fourth quarter of 2023. TurboTax only prints the forms and schedules that are transmitted to the IRS. Form 2210 will be be filed unless you are requesting a waiver of the penalty or your penalty is reduced or eliminated by annualizing your income because it varied during the year.
You may want to adjust your withholding to make sure you don't have an underpayment penalty in the future. I recommend you use one, or both of the following tools to determine the correct amount to have withheld and adjust your W-4. It won't be any help for 2024 taxes, but it can prevent you from owing any tax on your 2025 return.
It's unlikely a TT glitch, TT core tax calcs are solid and it follows Form 2210 for penalty calculation.
To avoid underpayment penalty in 2024 you need to have paid either 100% of your 2023 tax (110% if AGI > 150k), or 90% of your 2024 tax, whichever is smaller (the 'safe harbor' amount). If you are paying estimated taxes these need to paid evenly each quarterly (safe harbor amount divided by 4) as the underpayment is calculated on a quarterly basis, just meeting (or even overpaying) the target annual number by Q4 is not enough if you didn't pay enough from Q1. If you have a large unplanned tax event like a Roth conversion and paid estimated taxes later in the year due to that, you can adopt the "Annualized Income" method on Form 2210 to show the timing and reduce/eliminate the penalty.
If you don't pay estimated taxes but have an underpayment penalty this means your withholding is too low.
So the $394 depends on your situation for 2024, what the safe harbor was for your return and what you paid in withholding or estimated taxes or when.
In TT desktop version you can drill down in Forms view to get to Form 2210 there is a lot more flexibility to get to these details at any time you are preparing your return. I'm not as familiar with online but Form 2210 may be in the PDF with "all forms and worksheets"
See Form 2210 instructions for more info
https://www.irs.gov/pub/irs-pdf/i2210.pdf
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