Question

Underpayment Penalty - But I paid 100%

Forum|Forum|6 years ago
February 14, 2020
1 reply
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In 2018 I made 50k, which required estimated federal tax payments of roughly $1,200 per quarter. So in 2019, I made quarterly payments of $1,200, on time, as recommended by the TurboTax vouchers I received when I filed my 2018 taxes. By the end of 2019 I made a lot more than 50k. And now that I am preparing my tax return for 2019, I see that I am getting an underpayment penalty for not paying 90% of my tax liability for 2019. I thought that I would be safe because I paid 100% of the 2018 tax liability. Is TurboTax correct in assessing an underpayment penalty?

DawnC

Employee

TurboTax is correct; please read the following explanation. Underpayment penalties are assessed if you don't withhold or pay enough tax on income received during each quarter. In fact, it's entirely possible to get hit with an underpayment penalty even though you paid your tax bill in full by the April deadline or are getting a refund.

Example: Joe is self-employed and estimated next year's tax bill at $20,000. Rather than making 4 quarterly payments of $5,000 apiece, he chose to pay $500 in each of the first 3 quarters, and the remaining $18,500 in the fourth quarter.

When he filed, his actual tax bill came to $17,270 and he got a $2,730 refund. However, he got hit with the underpayment penalty because he underpaid his estimated tax in the first 3 quarters.

Tip: To reduce or possibly even eliminate your underpayment penalty, search for annualizing your tax (use this exact phrase) inside TurboTax. This will take you to the underpayment penalty section and we'll take you through the steps to possibly reduce your underpayment penalty. (If you don’t see Jump to annualizing your tax in the search results, make sure you’re in your return and not on the Tax Home page).

Related Information:

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B

Bill Wizard

I fully paid my 2018 tax including a penalty for not prepaying or withholding. I'm now preparing the 2019 1040 and Have pre-paid about 80% of the estimated 2019 tax. Where do I enter the prepayment in the Turbo forms?

Thank you in advance...

Bill Wizard

T

ThomasM125

This is how you enter estimated tax paid in TurboTax:

1. Go to the "Federal" section in TurboTax and click on "Deductions and Credits"

2. Find "Estimates and other Taxes Paid" and look for "Estimates" and click on it

3. Click on "Federal estimated taxes for 2019" and work through that section

If you paid in 100% of 2018 tax on a quarterly basis, you should not be assessed a penalty in 2019. You can complete form 2210 in TurboTax to calculate if you have a penalty or not.

Go to "Other Tax Situations" and click on the "Underpayment Penalties" under "Additional Tax Payments" :