Why do I have an underpayment tax penalty

[honeysocket]

I do not pay quarterly.  Taxes are withheld from my paycheck

[JotikaT2]

The underpayment penalty is calculated if you do not have enough withheld in income taxes throughout the year as you earn your income.  Please see this link for more information on annualizing your income to see if that helps reduce some of your underpayment penalty.  

To avoid this in the future, you may want to update your W-4 Form to ensure you are withholding enough in income taxes throughout the year.  You can update your W-4 within TurboTax itself while preparing your tax return by following these instructions.  If you have already filed, you can also use this link to help you update your W-4 Form.  Regardless of which option you choose, you will need to print out the W-4, and submit it to your employer in order to have them make the necessary adjustments to your paycheck.

[VolvoGirl · Accepted solution]

Sounds like you are not having enough withheld from your pay.  The Underpayment Penalty on your 1040 line 38? That's not for filing or paying late. And is not about last year. And not about paying estimates. The penalty is an estimated amount.

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

[Mike9241]

your withholding was a) not 90% of your 2023 tax or b) it was not 100% (110% if your 2022 adjusted gross income was over $150,000 of your 2022 tax) whichever is less