Why am I being charged an underpayment penalty? I have already paid 110% of the prior year's total tax liability, so I thought that avoided the penalty.

[DianeW777]

It depends. The IRS system is 'pay as you go' which simply means when you make money they want the tax dollars.  If you did not pay estimated taxes equally throughout the tax year, then you could have a penalty. Check the dates and amounts of estimated tax payments made to see if they are equal or paid late.

There could still be a penalty if the payment you made was in a period later than April 15th and not paid evenly throughout the year. If this could be the case then you can use the 'annualized method' to show exactly when the unplanned capital gain you earned in 2024.

• Form 2210 Instructions

You can choose to use the annualized income/tax method in TurboTax by using the steps below. Have  your 2023 return ready just to confirm your numbers.

1. Open your TurboTax Online or TurboTax Desktop return
2. Search (upper right) > Type underpayment penalty 
   1. TurboTax Online: Click 'See More' at the bottom of the FAQ that pops up > Click on Go to annualizing your tax
   2. TurboTax Desktop:  Click the Jump to.. link
3. Continue selecting to use the annualized method and enter the income in the slots where earned.  For wages, interest, dividends or anything earned equally through out the year divide by 12 and multiply by 3/5/8. Add the unplanned capital gains in the slot where the sales occurred. 
4. Make sure you have entered your estimated taxes in the appropriate quarter in that section. TurboTax will use them to calculate any penalty.
   1. Where do I enter my estimated tax payments?

[shauna-a-jennings]

Thanks. I understand that, but I don't understand why the safe harbor provision doesn't apply. From the IRS website:

"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%."

I've already paid >110% of the tax shown on my 2023 return, so I thought that would avoid the penalty. What am I missing?

[HairyAlaskan]

Similar situation with me. As a comparison I calculated my taxes on the IRS site and they did not charge me the penalty.

I found a workaround that might help at the link below where you check a box on the tax for to have the IRS check to see if you actually owe a penalty and send you a bill if you do.

https://thefinancebuff.com/opt-out-underpayment-penalty-turbotax-hr-block.html

[IsabellaG]

TurboTax assumes that you earned the income for the year evenly throughout the year, and the IRS wants you to pay your estimated taxes as you receive the income, evenly throughout the year as opposed to one large payment at the end of the year. That's how you can wind up owing an underpayment penalty despite having paid in 110% of your 2023 tax liability.

DianeW777's advice addresses this situation. 

@shauna-a-jennings