Question

Taxes on 1099-INT

Forum|Forum|2 years ago
January 31, 2024
2 replies
0 views

The past 5+ years, I normally owe the IRS between $500 to $1800 after reporting my W2, 1099INT/DIV. I never have to pay underpayment penalty. I made no changes on my W2 the past 5 years. Salary remains the same the last 5 years (no increase). The only big difference in 2023 is my 1099INT.

In 2023 interest hit the highest point which resulted in massive increase in my 1099-INT (it's likely triple/quadruple the amount I normally get). The total 1099 interest adds a huge amount to my AGI. I am sure I will owe the IRS taxes on my interest income and it's likely a lot (in the thousands). I have not started my 2023 yet so I don't know how much I owe.

Do I have to pay underpayment penalty?

Not A Product Question

M

Mike9241

There will be no federal penalties for not paying in enough taxes during the year if withholding and

timely estimated tax payments equal or exceed 90% of your 2023 tax or
timely estimated tax payments equal or exceed 100% of your 2022 tax (110% if your 2022 adjusted gross income was more than $150K) or
the balance due after subtracting taxes withheld from 90% of your 2023 tax is less than $1,000 or
your total taxes are less than $1,000

you do have the following options

A) for withholding the default is 1/4 of the annual total is deemed paid each period, you can use actual amounts but if for one period it must be for all

B) you can use the annualized income method if that will produce a lower penalty

if you don't meet any of the exceptions in 1 to 4 above and neither options A or B eliminate the penalty then you will owe a penalty. Based on what you say is the cause, you don't have a reasonable cause for not meeting the exceptions.

state laws differ

T

TaxNoob18Author

Can TurboTax automatically calculate everything for me after inputting all my income and tell me if I need to pay penalty or not? I use the web version. My AGI is never over $100K (if that matters).

VolvoGirl

Employee

Yes it will figure the penalty automatically. It will reduce a refund or add to a tax due. But the amount Turbo Tax calculates (or doesn't) on your return line 38 is only an estimate. Turbo Tax can not figure it accurately because they don't know exactly when the IRS or state will get your return and tax due payment. It's common and normal and expected for the IRS or state to bill you for more or send you a refund.

VolvoGirl

Employee

Maybe. You should be sending in quarterly estimated payments to cover the interest income.

If you get a penalty, 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

T

TaxNoob18Author

I have no idea how to pay the IRS quarterly estimated payments. Never been in this situation in my life (interest is never this high). I did think about increasing my Federal withholding in 2023 to cover interest income but didn't do it. Thanks for the tip on how to eliminate/reduce the penalty.

VolvoGirl

Employee

If you end up owing too much Turbo Tax should automatically prepare the 1040ES estimated payments for you. They are optional to use and don't get sent with your return so the IRS won't be expecting them.

Or to prepare estimates for next year you need to be in your current return. But be careful not to change anything in your actual return.

In TurboTax Online, sign in to your account.
Select Tax Home in the left menu.
Scroll down to Your tax returns & documents.
Select 2023, and then select Add a State (you're not actually adding a state, this just gets you back into your return so you can make changes).

Go here,
Federal Taxes or Personal (Home&Business version)
Other Tax Situations
Other Tax Forms
Form W-4 and Estimated Taxes - Click the Start or Update button

Say No to W4. When you get to the W4 and Estimated Taxes section, say you want to adjust your income to go though all the screens.