TurboTax online does recognize the 110% safe harbor rule (for high-income earners with AGI over $150,000) but it may incorrectly calculate a penalty if payments were not made evenly throughout the year. To avoid the penalty, payments must be made timely. The IRS treats the underpayment penalty on a quarterly basis.
The 110% safe harbor rule allows high-income taxpayers to avoid IRS underpayment penalties by paying 110% of their previous year's tax liability through withholding and quarterly estimated payments.
Even if you pay 110% of your prior year's tax by January, if your income was earned early in the year, the IRS may still charge a penalty for missing earlier payment deadlines. The 110% safe harbor is applied per quarter.
If your income was not earned evenly, you can use the annualized income installment method (Schedule AI) in TurboTax to reduce or eliminate the penalty.
W2 withholding is treated as paid evenly throughout the year, regardless of when it was withheld, which can help satisfy the requirement if estimates were late
If TurboTax shows a penalty despite meeting the safe harbor, make sure you have correctly entered the previous year's total tax liability.
Generally, you can avoid the penalty if your total timely estimated payments and withholdings are greater than or equal to the lesser of:
- 90% of the total tax after credits for the current year, or
- 100% of the total tax after credits in the prior year
- See one exception below.
To get back to the screens in TurboTax for the underpayment penalty to review your entries you can:
- Click on Search at the top right of your TurboTax screen.
- Type underpayment penalty in the search box.
- Click on the link that says Jump to Underpayment penalty
- Review your Turbotax screens.
Please return to Community if you have any additional information or questions and we would be happy to help.
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