Underpayment penalty

[andyshore216]

I use Turbo Tax to do my taxes every year.  I do not pay estimated taxes, I am an W2 employee.  Why would I get an underpayment penalty now for previous years.  Shouldn't Turbo Tax have caught that last year when I did my returns?

[baldietax]

Depends the details of your situation.  To avoid underpayment penalty you need to pay during the year, either thru withholding or timely estimated taxes (ES), the safe harbor amount which is the smaller of - 100% of your prior year tax (110% if AGI > 150k or 75k if filing MFS), or 90% of your current year tax (see Form 2210 Lines 1-9 for the calculation).

When you did your 2024 return TT will generate ES vouchers (if needed) by default based on paying 100/110% of prior year tax and assuming your 2025 withholding is the same as 2024.  You can provide other estimates for the coming year under Other Tax Situations / Form W4 and Estimated Taxes.  Similar process for 2026 estimates while you prepare 2025.

If you didn't pay any ES, and got a penalty for 2025 then presumably your withholding didn't meet the safe harbor for whatever reason(s).