Underpayment Penalty Waiver

[disilvios1]

I'm married, filing jointly with high income. I withheld 117% of my 2024 total tax (including estimated taxes paid) for 2025 and still own more. TT initially calculated an underpayment penalty of $404. I even went through the annualized calculations and reduced the penalty to $230. I was not able to find a way to select the exemption for paying more than 110% of my prior year taxes even though TT clearly knows those figures.

Is there a way to force the "more than 110%" exemption to eliminate the penalty?

I've been using TT since 1997 so it's not like I'm new to this.

[DianeW777 · Accepted solution]

It depends. The IRS is a pay as you go system, so if you didn't pay enough estimated tax in the appropriate quarters you could still have a penalty. It can happen when a refund is the end result. If you did pay it evenly throughout the year and your income was relatively even throughout the tax year you should be penalty free based on what you have explained. The link below should be used to begin 

• How do I add Form 2210 to my file?
• Double check your estimated tax payments were entered in the appropriate payment periods. And make sure that you have enough paid each quarter for the income earned.

You can review the annualized income/tax method in TurboTax by using the steps below. Have  your 2025 return ready just to confirm your numbers.

1. Open your  TurboTax Online or TurboTax Desktop return
2. Search (upper right) > Type underpayment penalty 
   1. TurboTax Online: Click 'See More' at the bottom of the FAQ that pops up > Click on Go to annualizing your tax
   2. TurboTax Desktop:  Click the Jump to.. link
3. Continue selecting to use the annualized method and enter the income in the slots where earned.  For wages, interest, dividends or anything earned equally through out the year divide by 12 and multiply by 3/5/8. 
4. Continue to follow the screen prompts

You seem to understand the requirements, they are posted here for your convenience as well.

 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.

@disilvios1 

[disilvios1]

Thanks. I do not see the waiver requirement of paying more than 110% of my prior year tax as also being contingent on when payments are made. I made timely estimated tax payments prior to each of the four deadlines and ended up at 117%. I specifically targeted the amount paid to be more than 110% to avoid the penalty. Based on the requirement of "you can avoid a penalty by paying at least 110% of your total tax from the prior year", should I not qualify for the waiver even if I withheld nothing and made one estimated payment prior to the fourth deadline in January?

TT obviously knows how much my 2024 total tax was (because it filled it in for me) and knows how much I paid for 2025. Years ago, I recall a pretty simple process of claiming a waiver when you had paid more than 110% but I can't find a way to do that now.

[DianeW777]

Yes, you will have a penalty simply because you made a payment late. Estimates had to paid evenly or you would have been considered as paying late since you missed a payment period, or two. This is a factor even if your payment before January was enough to cover the 110%.  The IRS is required to collect the money when it's earned as well as interest and penalty if paid late.

@disilvios1 

[disilvios1]

Got it. Thanks for the additional explanation.