What is line 38 estimated tax penalty?

[georgewickman]

i'm being charged $52.00 for what penalty?

[VolvoGirl]

If you do not pay in enough tax from withholding and estimates, you may have to pay a penalty for underpayment of estimated tax. Even if you are getting a refund you can still owe a penalty for not paying in evenly during the year. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, 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. It is included in your tax due or reduces your refund.

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.

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

[Vanessa A]

You receive an estimated tax penalty when you have an amount due on your taxes.  This is called an underpayment penalty.

There are some exceptions to the penalty.  If you paid 100% of your prior years tax liability in 2023 or if you paid 90% of your tax liability for 2023.

You can go back to Other Tax Situations>>Underpayment Penalties to see if you can get rid of the underpayment  penalty.  

[susiesan8]

I paid estimated payments of 100% of 2022 taxes. Where do I report this on TurboTax Premier to avoid the penalty? The software is putting a penalty on line 38.

[MonikaK1]

Did you mean 2023 taxes? or are you preparing a 2022 return?

If you made estimated or quarterly tax payments in 2023 toward your federal, state, or local taxes, enter them in the Estimates and Other Income Taxes Paid section. 

Note: If your TurboTax navigation looks different than what’s described here, learn more.

1. Open or continue your return.
2. Go to the Federal section, then Deductions & Credits.
   • You can also search for estimated tax payments and select the Jump to in the search results.
3. Select Estimates and Other Taxes Paid.
4. Select Start or Revisit next to Estimated Tax Payments.
5. Choose Start next to the type of estimated tax payment you'd like to enter.
6. Enter the amount of estimated tax you paid at each of the quarterly due dates.
   • If you paid 2022 estimated taxes in 2023, you'll enter just one amount for each state or locality.

If TurboTax is showing an underpayment penalty on your return, visit or revisit the Underpayment Penalty section under Other Tax Situations and answer the interview questions. The penalty calculation may change based on your answers, including information about when your withholding was applied. In addition, if you believe you qualify for a waiver of the penalty, you can request a waiver in that section.

The IRS may reduce an underpayment penalty if any of the following apply:

• You or your spouse (if you file a joint return) retired in the past 2 years after reaching age 62 or became disabled and you had reasonable cause to underpay or pay your estimated tax late. See Waiver of Penalty in Instructions for Form 2210PDF.
• You had most of your income tax withheld early in the year instead of spreading it equally through the year. 
• Your income varies during the year. Complete Form 2210, Schedule AI, Annualized Income Installment Method PDF(found within the form).

The penalty for underpayment of estimated tax can also be removed to the extent that the underpayment is the result of a casualty, local disaster, or other unusual circumstance such that it would not be fair to impose the penalty.

See here for information about different TurboTax tools you can use to calculate withholding and estimated taxes.

[Vic M]

what doesn't turbo tax just see that I  paid 100%  of prior year's taxes as the 4th qtr set tax payment  of the current year (2024) and put a zero on the penalty line ( line 38)   or am I  misunderstanding how the penalty gets avoided?

[SteamTrain]

@Vic M , it all depends on when the various sources of income were earned.

The "Default" method that the IRS and TTX uses, it assumes that all income is received evenly over the entire year.   Thus, if you received a big bump in income during the last quarter of 2024, the "default" method assumes that ~1/4th of it was received in each of the first 3 quarters...resulting in an underpayment penalty for those quarters.

The way you eliminate/ or reduce the penalty, is to go thru the underpayment penalties calculations on the "Other Tax Situations" page. There you will make entries escribing exactly which quarters all of your income was received...and exactly when all your payments of taxes were made (withholding too.)   Doing that prepare the form 2210 Annualized Income form that might remove the penalty.

Of course, if the big bump in income occurred during the first quarter, and you are just now paying for it...the 2210 Annualized income form probably won't help.

_____________________

But it is a chore to do that. You need all your monthly income, dividends, interest, etc so that you can enter your various income sources, by quarter (and the quarters are 3mos, 2mos, 3mos, 4mos) .  I've done it once, and decided not to bother again if penalty occurs again for less than ~$50.  (so far, just once for $12, so I just paid it and ignored the mess of the 2210 Annualized Income prep)

[Vic M]

Thanks for replying with such detail. It sure is a PIA.  The IRS should reword their underpayment text to indicate that each QTR must be met to avoid penalty for the 100% prior year paid avoidance. Currently it just says:

"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%.

Nothing there about each QTR which would have made me do things differently, had I    understood what your reply states. Thank again.

[SteamTrain]

Yeah, they do have a statement somewhere about those limits, but includes a statement that that the payments be made either thru tax withholding, or thru timely-paid quarterly Estimated tax payments.  The part about the Quarterly estimates being paid in a "timely" manner is usually the sticking point form many folks.

[xrebp]

Just another TurboTax error.   Last year I had a penalty like that,  so sent in a check to IRS for it.   The IRS sent a check back as there was no penalty and I did not owe what Turbo Tax said I did.   Was never an explanation of what the penalty might be for.

[VolvoGirl]

What do you mean you sent a check for it?  Did you send a separate check for it?  The penalty was already included in your tax due or had reduced a refund.  And it is just an estimate so it is possible for the IRS to recalculate it and send you a refund or a bill for more.

If you had a Tax Due.  The Tax Due on 1040 line 37 is line 24 Tax minus 33 Payments PLUS line 38 Penalty.

If you had a Refund.  Take the overpayment on line 34, subtract the penalty from the amount you would otherwise enter on line 35a or line 36. Lines 35a, 36, and 38 must equal line 34.

[FrankT53]

Dear VolvoGirl...

I'm not sure what or where the "Tabs" are that you reference in your answer below:

"... 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..."

Thank you!

[VolvoGirl]

If you have the Online version click on Federal on the left side column.  If you have the Desktop program the menu tabs go across the top.  

[KrisD15]

The online versions have the option on the left side-bar.

You may need to click "personal Info" to get back into the return and then oyu can find the "Other Tax Situations" on the left.

@FrankT53