Underpayment Penalty

[zeman]

  Last year I paid my taxes in full, I did not do estimated taxes. This year Turbo Tax is saying I owe an underpayment penalty. How can this be? How can I get it removed?

[VolvoGirl]

If you get a penalty on 1040 line 38, you might be able to eliminate it or at least reduce it. You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you. It's form 2210.

How to add form 2210 for Underpayment Penalty
https://ttlc.intuit.com/community/tax-payments/help/how-do-i-add-form-2210/00/25703

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

[martavanna]

I am running into the exact same problem as you are.   Although I paid my taxes in full last year,  Turbo Tax now says I owe an underpayment penalty and  there is no explanation for this underpayment penalty.    

[leesawhite]

I had the same thing happen to me.  I paid in 100% of my tax liability for 2024 but was assessed an underpayment penalty by TurboTax.  I gather this is because I did not pay in 90% of my prior year (2023) tax liability, which is required in order to avoid a penalty.  There are some exceptions to this 90% rule.  Take a look at Form 2210 and the related instructions (you can access these at www.irs.gov).  It can depend on how you paid your taxes in.  If the taxes were paid by an employer or were paid via withholding on, for example, IRA or annuity distributions, then these taxes are deemed to have been paid throughout the calendar year.  So the rule relating to quarterly estimated tax payments does not apply.  However, I believe that the 90% rule still applies.  Check your prior year return and determine whether you paid in 90% of your 2023 tax liability.  If not, this could be the reason that TurboTax calculated an underpayment penalty.  I actually submitted a comment to TurboTax that it would be very helpful - if TurboTax calculates an underpayment penalty - that TurboTax also explain the underlying analysis and why the penalty applies, and if there is an exception and - if not - why not.

[JamesG1]

This IRS website states:

You may avoid the Underpayment of Estimated Tax by Individuals Penalty if:

• Your filed tax return shows you owe less than $1,000 or
• You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less. If your adjusted gross income (AGI) for 2023 was more than $150,000 ($75,000 if your filing status for 2024 is married filing separately), substitute 110% for 100%.

@martavanna