Question

Underpayment Penalty incorrectly calculated

Forum|Forum|5 years ago
April 5, 2021
2 replies
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I filled out the underpayment penalty section in Turbotax and it says I owe around $400. But I paid estimated tax payments quarterly last year and I calculated 110% of last year's liability (based on the number Turbotax shows me in that section!) and my total withholding is over that number. Why does Turbotax still say I owe an underpayment penalty?

At first it was even higher because it didn't ask me about the estimated payments - after adding those it reduced down, but is still very high. It seems I can't see form 2210 directly, so I don't know how it's calculating this. Yes my total tax withheld is less than 90% of this year's taxes, but supposedly if you pay 110% of last years (which I did between my W2 withholdings and my own estimated tax payments) the fee should be waived. How do I get Turbotax to take this into account?

@Mocha42

TurboTax Premier Online

H

HelenC12

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.).

Generally, most taxpayers will avoid this penalty if they either:

owe less than $1,000 in tax after subtracting their withholding and refundable credits, or
if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.

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K

katgwaldAuthor

Thank you! So I have to annualize to not get an underpayment penalty? Turbotax doesn't seem to suggest that annualizing is required. I know that I qualify to waive the penalty under the "paid 100% of the tax shown on the return for the prior year" case you list. Turbotax should also know this since it has my last year's tax liability. Why does it still think I have a penalty?

If I must annualize, none of my tax documents offer the annualized totals, just the yearly amounts. Do I have to go back and calculate all of my income per quarter manually?

SteamTrain

Employee

Yes, annualizing is a PITA, since you need to go thru your income records and break everything down by Qtr, even while your year-end tax forms don't show any kind of breakdown. It's painful enough, that if the penalty is small, I don't bother for any penalty under ~$50 (but that's my personal pain limit ).

The issue with including the Estimated payments along with the withholding, for exceeding a certain % level to eliminate the penalty. That really depends on whether all the Estimated payments were exactly the same $$ amount, or were uneven. For example: the first 3 payments being $500 each, and the last one being a $million (and getting a huge refund ), that may in total go over the 90/100/110% limit, but unless you run the full annualized income calcs, one may still be considered to have underpaid the first 3 qtrs.....since all income is considered to be gained evenly until you annualize to indicate exactly when each $$ was received.

((((AND....I have absolutely no idea how the allowed delayed estimated payments, and quarterly estimates are properly to be dealt with, along with the 2020 income quarterly annualizations.....is it all a first half together, and the last 2 qtrs separately..... or what?....that's a muck-up for doing the 2020 annualizations....maybe someone else knows far better than I do))))

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*

C

coolie740

I have a similar question and I don't understand there solution that was given.

My situation is the I overpaid 2019 taxes, so the overpayment was applied to the 2020 taxes. So regardless of how I paid or earned in 2020, I should not have to pay an underpayment penalty since I paid 100% of 2019 taxes. Line 8 on 2210 doesn't show 90% of 2019 but 100%. Where do I look to correct this?