What is a underpayment penalty

Level 7

Jun 3, 2019 12:11:45 PM

When you don't have enough tax withholding and you don't make estimated tax payments during the year, then the IRS or your state can charge you with an underpayment penalty. It is not the same as the interest or penalty the IRS will charge you for not paying your balance due on time (by April 15th).

This penalty generally only applies when you owe more than $1,000 in federal tax on your tax return. Basically, you get charged this penalty for owing too much tax and not making the proper payments during the year (either through withholding on your paycheck or estimated tax payments).

Here is an excerpt from the IRS -

"The United States income tax system is a pay-as-you-go tax system, which means that you must pay income tax as you earn or receive your income during the year. You can do this either through withholding or by making estimated tax payments.

If you don't pay your tax or you pay an insufficient amount of tax through withholding, you might also have to pay estimated taxes. If you didn't pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax."

If you have been assessed an underpayment penalty, then you can see if you may qualify for an exception to the penalty. You may want to look into these exceptions if this is the first year you owed tax and it is not a normal occurrence (i.e. you had one time income this year).

"Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or if they paid at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller."

You can review the underpayment penalty section by using one of the following two methods

First, you can perform a search within the program.

Log in and click Take Me to My Return
Use the search icon in upper right-hand corner (magnifying glass icon)
Search for “underpayment penalty”
Click the “Jump to underpayment penalty” link
This will take you directly to the section of the program where you can review the underpayment penalty and possibly qualify for an exception

Second, you can use a step by step method of getting to the same place above

Log in and click Take Me to My Return
Click Federal Taxes (Personal if in Self-Employed)
Select Other Tax Situations
Scroll down to Additional Tax Payments
Click start/edit next to Underpayment Penalties

You can also choose to have the IRS figure out your penalty. Go through the above section for Underpayment Penalty and during that interview, one of the questions will ask if you would rather have the IRS calculate your penalty. Say Yes, and this will override any penalty TurboTax has calculated. If you are liable for a penalty, the IRS will send you a bill for this amount later.

New Member

Mar 3, 2020 5:41:50 PM

On state part, page that says Penalty for underpayment of Estimated Tax. says 'Enter your tax liability from your 2018 Kentucky return'. But I did not file 2018 taxes. What do I do?

New Member

Apr 17, 2020 8:13:05 AM

I am getting a underpayment penalty for 2020. I am also getting back a refund. I have paid my estimated taxes this yer. Could this be a Turbotax program error???

Level 2

Apr 18, 2020 11:48:13 AM

I am getting an underpayment penalty even though I paid 99% of my taxes due in my quarterly estimates. TurboTax is filling in form 2210 incorrectly.

Last year it checked the part II box A correctly and added 80% Waiver.

There seems to be an error in Turbo Tax. Can we please fix this as I am not the only one with this issue.

Level 1

Jun 25, 2020 10:53:50 AM

When will the IRS mail out the underpayment penalty? I have already filed but have not paid what I owe yet. Will they send out penalty after I have paid what I owe?

Expert Alumni

Jun 25, 2020 11:02:28 AM

If you pay your tax due without the underpayment penalty, you will receive a notice asking you to pay the penalty within 6 to 8 weeks.

Level 1

Jun 25, 2020 11:10:49 AM

Thank you!!! 🙂

Level 2

Feb 17, 2021 10:12:36 AM

I don't see a way to override the penalty that TurboTax calculated. If I follow the instructions below, it doesn't ask me whether I'd rather have the IRS calculate the penalty. It just adds whatever it calculated to the amount I owe. How do I know it calculated it correctly?

Expert Alumni

Feb 17, 2021 10:56:12 AM

TurboTax calculates the underpayment penalty and interest based on IRS guidelines. It is based on the amount that you owe, and the date you say you're going to make the payment. The IRS will recalculate it once your return is accepted.

Level 15

Feb 17, 2021 10:59:36 AM

The amount Turbo Tax calculates on your 2020 return 1040 line 38 is only an estimate. Turbo Tax can not figure it accurately because they don't know exactly when the IRS or state will get your return and tax due payment. It's very common and normal and expected for the IRS or state to bill you for more or send you a refund.

Level 2

Feb 17, 2021 11:55:13 AM

Is there a way I can omit the penalty when I e-file through Turbotax and just wait for the IRS to bill me later?

Level 15

Feb 17, 2021 12:02:57 PM

I know you can in the Desktop program. I saw a post saying you can in the online version but I think you only can bypass it using the Desktop program. For Online go through the 2210 and see if there is a question to let the IRS calculate it for you.

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

Level 2

Feb 17, 2021 12:22:06 PM

I'm using desktop Deluxe, not Home & Business, and there's no question about IRS calculating it for me, just a statement showing what the penalty is. They should allow the user to let the IRS calculate it, especially since form 2210 calculates it to be lower than what Turbotax figures. Or at least show how Turbotax calculates it.

Level 2

Feb 17, 2021 12:41:33 PM

Never mind. I see where they allow IRS to calculate penalty. It's later in the process.

Thanks for your help.

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What is a underpayment penalty