Underpayment penalty

[dfwg]

Turbotax identified underpayment penalties for both Fed and Cal State tax returns where I am receiving a large tax refund from both Fed and State tax returns.  I paid my 2023 Fed estimated taxes ($55,040) based upon the 110% value of my 2022 taxes ($55,038). 

My Cal State Form 5805 Worksheet shows penalties of $18.20 for Payment Date 04/18/23; $11.72 for Payment Date 06/15/23; and $77.91 for Rate Change Date  07/01/23 for a total underpayment penalty of $107.83.

I paid both Fed and State quarterly estimated payments in accordance to the 2023 Fed & State disaster payment extension on 10/06/2023. 

Thanks for any advice on my underpayment issue.

[JohnB5677]

Please clarify your question.

• You paid $55,038 in federal taxes in 2022
  • That is will into the 110% requirement
  • You paid $55,040 in estimated taxes for 2023
  • 110% is $60,542
  • Regarding the disaster: "Affected taxpayers that have an estimated income tax payment originally due on or after Jan. 21, 2024, are postponed through June 17, 2024, will not be subject to penalties for failure to pay estimated tax installments as long as such payments are paid on or before June 17, 2024."
• The California penalty amount for each quarter is erratic.
  • Did you pay smaller amounts in the beginning and a larger amount at the end.
  • The penalty is 5 percent of the unpaid tax (underpayment), plus 0.5 percent of the unpaid tax for each month or part of a month it remains unpaid (monthly).
  • For further information, contact the California DOR    Contact Information

[dfwg]

Thanks for the quick response.  To clarify; my 2022 Fed taxes was $91,911 and the TT 110% for 2023 estimated taxes was $101,103.  Expected withholding was for 2023 was $46,065 (2022 actual). The TT estimated taxes for 2023 to be paid after withholding was $55,038.   I paid  a total 2023 estimated taxes of $55,040.  I paid the 2023 quarterly estimated taxes in accordance with the date of the 2023 disaster extension date of 10/16/2023.

"Victims of severe winter storms, flooding, and mudslides in California beginning Jan. 8, 2023, now have until Oct. 16, 2023, to file various individual and business tax returns and make tax payments."  I am thinking that the TT calculated 2023 underpayment penalty ignores both the 110% total payment and the disaster tax extension date. 

My Cal State 2023 quarterly estimated taxes was also paid in accordance with the disaster tax extension date of 10/16/23, but it appears that my TT calculated State Form 5805 worksheet shows penalties for not making 2023 estimated payments prior to the 10/16/23 disaster extension date.  I paid the full quarterly 2023 estimated taxes calculated by TT of $10,600 by 10/16/23 electronically.  Thanks for your help.   

[JohnB5677]

Thank You, I better understand your concern.

We're looking into it now.

Do you live in one of these county's? 

Alameda, Colusa, Contra Costa, El Dorado, Fresno, Glenn, Humboldt, Kings, Lake, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Mono, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Benito, San Bernardino, San Diego, San Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Tulare, Ventura, Yolo, and Yuba counties qualify for tax relief.

[dfwg]

Yes, Los Angeles County.

[dfwg]

JohnB5677

Is there any further information available from Turbotax regarding my underpayment penalty issue?  Thanks.

[MonikaK1 · Accepted solution]

If you have taxes due with your return, a penalty for underpayment of estimated taxes is calculated by TurboTax, and you paid estimated tax within the extended time period for California disasters:

Visit or revisit the Other Tax Situations section and review the Underpayment Penalty information to confirm it is correct. Go through the interview and follow the prompts; when you get to the Penalty Waivers screen, answer "yes" if you qualify for a disaster exception, then "yes" at the next screen to request a waiver of the penalty, in all or part. Enter the reason in the field provided.

If you live in a federally declared disaster area and met the special filing and payment deadlines for that disaster, you qualify for an automatic underpayment penalty waiver. Even if the penalty is calculated on the return, the IRS should not charge the penalty. 

See here for the IRS requirements for the California disasters for 2023.

If you get a notice from the IRS proposing to assess the penalty, see this IRS webpage for guidelines and next steps.

Because the Federal and state extended filing deadlines are available only for individuals living in areas impacted by official disaster declarations during specified dates, the deadlines themselves aren't updated in the software. The tax agencies made an administrative decision not to impose the penalties, but since the law itself didn't change, tax software including TurboTax still calculates the penalties. 

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment, or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

See here for related information from the California Franchise Tax Board.