Underpayment Tax Penalty

[Askin]

Hi, Intuit TurboTax shows some $ amount for the underpayment penalties of my estimated tax in Other Tax Situations while filing for 2024.  When continue, it shows the previous years of tax filing info as if I paid less in the previous year's filling. However, I just confirmed with my IRS account that I do not owe anything.  There is no evidence that I owe anything from the previous year. Also, if my overall tax paid in 2024 is less than required, I know the outcome of this return would show me how much I owe that I will pay in time anyway like the previous years.  So, I chose let IRS bill me later for that underpayment penalty.

Therefore, I think TurboTax software has a bug and should be investigated and addressed asap.

[KeshaH]

When going through the underpayment penalty questions, TurboTax asks about your 2023 information to determine if you have a penalty for your 2024 return. The IRS won't have any information about a penalty just yet.

To avoid or reduce the underpayment penalty, you have to pay the smaller of:

- 90% of your current year liability (2024) or

- 100%* of your last year liability (2023 - this is called the safe harbor)

You were asked about your 2023 income and 2023 tax liability to see if  your 2024 withholding & estimated payments were enough to avoid the penalty on your 2024 return. If you paid in at least 100% of your 2023 liability, you wouldn't owe a penalty. 

TurboTax is working correctly to calculate the underpayment penalty. By choosing to let the IRS calculate the penalty, TurboTax will not calculate if you have a penalty on your 2024 return for you 2024 payments. You will get a bill in the mail at a later date.

* If your 2024 income is over $150,000, you'd need to pay 110% of your 2023 liability