underpayment penalty

[hmmtaxstuff2]

Why is turbotax calculating a small underpayment penalty when I paid the IRS directly over 110% of my last year tax due?  my AGI is over $150,000 married filing jointly but that is only due to a roth conversion in the fourth quarter. 

I have entered the payment to the IRS in turbotax as other tax payment since it was not as estimated quarterly payment.

how do I get rid of the underpayment penalty?

[baldietax]

Did you pay estimated tax evenly thru the year or a bigger payment for the 4th quarter due to the Roth conversion?

The IRS penalty calculations assume your income and payments occur evenly so if your AGI is increased due to the Roth conversion in the 4th quarter that is by default smoothed out over the year - so you are probably getting a penalty because it thinks you underpaid for Q1, Q2 etc even tho by the end you paid the total safe harbor amount.  

If this is what's happening you can reduce the penalty by adopting the "Annualized Income" (AI) method under "Other Tax Situations" / Underpayment Penalty which feeds into Form 2210 that is used to convey uneven timing for large unplanned taxable events like Roth conversions or large capital gains.

You'll need to calculate and provide AGI etc thru the year as of 3/31, 5/31 and 8/31 for this method.  Recommend checking the outcome on Form 2210 and there should be a worksheet which explains any residual penalty (this method may penalize you for any other misalignment in your AGI vs. payments where you were benefiting previously but should significantly reduce the penalty if not eliminate it).

Not a CPA/Expert just my 2 cents dealing with same issue.

[DawnC]

The IRS levies underpayment penalties if you don't withhold or pay enough tax on income received during each quarter.  Even if you paid your tax bill in full by the April deadline or are getting a refund, you may still get an underpayment penalty.   To possibly reduce or eliminate your underpayment penalty, see this TurboTax FAQ.