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Is anyone having problems with TT's calculation of the underpayment of tax? I don't think it's accounting for an estimated payment I made.

Forum|Forum|1 year ago
February 19, 2025
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I don't think TT is correctly calculating my underpayment of tax. The rule is you need to pay the lesser of either last year's tax or 90% of this year's total tax. Failure to do so results in penalty. I under-withheld during the year but made an estimated tax payment to make up the difference. The software does not seem to account for the payment estimate.

Best answer by baldietax

the penalty assumption is your tax liability occurs evenly throughout the year, and your quarterly estimated tax payments need to be made evenly throughout the year to line up with it. underpayment penalty is assessed on that quarterly basis not annual total.

if you made a large Q4 estimated tax payment you may have made it to the safe harbor total (90% in your case), but possibly underpaid for Q1, Q2 etc and if so that's the calculation TT is doing.

if you genuinely have a large Q4 tax event and associated estimated tax payment, like a Roth conversion or large capital gain, you can use Form 2210 "annualized income" method to convey the uneven nature.

on desktop TT in forms mode you can click thru the penalty on Form 1040 to a Form 1040 worksheet and click again thru to a Form 2210 worksheet which should show the calculation. not sure the equivalent in TT online but if you get your PDF with "all forms and worksheets" it may show the calculation, or others can chime in.

X

xmasbaby0

Employee

Did you enter the estimated payments you made into your tax return?

Go to Federal>Deductions and Credits>Estimates and Other Taxes Paid>Other Income Taxes

**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**

U

user1986Author

I did, yes. It was one estimated payment in Q4 made just after receipt of a year end bonus.

baldietaxAnswer

the penalty assumption is your tax liability occurs evenly throughout the year, and your quarterly estimated tax payments need to be made evenly throughout the year to line up with it. underpayment penalty is assessed on that quarterly basis not annual total.

if you made a large Q4 estimated tax payment you may have made it to the safe harbor total (90% in your case), but possibly underpaid for Q1, Q2 etc and if so that's the calculation TT is doing.

if you genuinely have a large Q4 tax event and associated estimated tax payment, like a Roth conversion or large capital gain, you can use Form 2210 "annualized income" method to convey the uneven nature.

on desktop TT in forms mode you can click thru the penalty on Form 1040 to a Form 1040 worksheet and click again thru to a Form 2210 worksheet which should show the calculation. not sure the equivalent in TT online but if you get your PDF with "all forms and worksheets" it may show the calculation, or others can chime in.

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user1986Author

BINGO. That did the trick. My employer provides substantial end of year bonus in Q4 (anywhere from 25% to multiples of employee salary) and the payment estimate was made at the same time. Thanks!!