Underpayment penalty

[SpicewoodTX]

In 2025, I paid over 110% of 2024 total federal tax in estimated taxes. Turbotax shows correct 2024 total tax and the correct amount in estimated tax payments. Why is it still calculating $215 in underpayment penalty?

[DaveF1006 · Accepted solution]

It depends. Even if your total for the year was 110%, the IRS requires you to pay that amount in four equal installments by the quarterly deadlines (April, June, September, and January).  If you made a massive payment in Q4 to "catch up" to the 110% mark, you were technically "underpaid" during Q1, Q2, and Q3.

The IRS charges interest (the penalty) on those early-year shortfalls from the day they were due until the day you finally paid them.

If you paid these payments evenly through all 4 quarters, you may have reported your 2024 tax incorrectly. If you reported your balance owed at the end of the year or reported the amount recorded in line 16 of the 1040, this is incorrect. it should be the amount of tax that is reported on Line 24 on the 1040.

[SpicewoodTX]

Thank you. I unexpectedly sold a second home mid-year and thought I had covered myself by making a large estimated tax payment in Q3. I guess that's not how it works! Thanks for the answer.