An underpayment penalty is incurred because you paid too little in the tax year that you are currently filing (2024). So, having filed everything correctly in 2023 does not cause or stop you from receiving a penalty in the next tax year.
Basically, this penalty comes because in 2024, you earned $XXX,XXX amount and had a tax liability of $X,XXX amount but only paid $XXX amount. The IRS is a Pay As go system, meaning, as you earn it, you must pay the IRS. When you pay too little during the tax year, the IRS will penalize you for this. This is not something TurboTax files or controls.
It is possible to get the penalty waived if:
- You had $0 tax liability in 2023
- You owe less than $1,000
- You paid 100% of your 2023 tax liability (110% if your income was over $150,000)
- You paid 90% of your 2024 tax liability
- 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
To apply for the penalty waiver, select the following:
- Other Tax Situations
- Show more next to Additional Tax Payments
- Start next to Underpayment penalties
You may want to complete a new W4, if your situation has changed such as you received another source of income, a spouse is working is received a raise or if you have self-employment income. If you were self-employed, you will need to make quarterly estimated payments to cover your Self Employment taxes of 15.3% and avoid penalties.
In the meantime, if you are unable to pay your taxes in full, you should still file by April 15th, but you can apply for a payment plan from the IRS. When you get to the end of TurboTax, prior to hitting file, it will give you the option to apply.
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