Does anybody know if when determining / calculating an income tax underpayment penalty if that includes fees / penalties as well? For example – if I had to do an early withdrawal from an IRA of $15,000 that did not meet an exception; I know the $15,000 would be considered income and would be subject to the underpayment penalty if I did not have enough withholdings. But there would also be a 10% penalty for the early withdrawal. Would that 10% penalty also be included in what I should already have withheld or is that treated differently and I just pay the penalty when I file? Note that I did pay 100% of my taxes last year (have always had a refund, just had an unexpected life event this year so things are off). From what I understand from the IRS site, there's no underpayment penalty if the amount owed is under $1,000 or you paid 100% of last years taxes.
Appreciate any help and information anyone could pass along.
Posted by lyneorem
1 Comment
At the end of the year you (or Turbotax) add the $15,000 to all your other income for the year (including wages). Then you calculate how much income tax is due on that total. If applicable, you then add $1500 (10% of $15,000) to that. This is your tax liability for the year.
Then you subtract how much income tax your employer withheld and you also subtract the income tax that was withheld from your 401k distribution. If the result is a positive number, that’s how much you owe. If it is a negative number, then that is your refund.
If your 2024 AGI was under $150,000 and the amount of income tax withheld from your pay plus the amount withheld from the 401k distribution is at least your total tax (line 24 on Form 1040) from 2024, you owe no underpayment penalty.
The above is for federal taxes only. Each state makes its own rules for state taxes.