How do I get underpayment interest refunded from the IRS?

You're absolutely right about the safe harbor rule! If you had withholding that covered 100% of your previous year's tax liability (or 110% if your AGI was over $150,000), you shouldn't be subject to underpayment penalties regardless of how much more you earned this year. The best approach is to write a letter to the IRS explaining your situation. Include documentation showing that your withholding met or exceeded your 2022 tax liability. Reference IRC Section 6654(d) which covers the safe harbor provisions. Mail this to the address on the notice you received. If you prefer to resolve this faster, you can call the IRS at the number on your notice, but yes, wait times can be long. Have your tax returns for both years handy when you call so you can quickly explain your situation and the exact figures that show you qualified for safe harbor.

I had almost this exact situation last year and was getting nowhere with the IRS until someone told me about https://taxr.ai and honestly it was a game changer. I uploaded my tax documents and the notice I got, and it analyzed everything and found that I actually qualified for the safe harbor provision just like you're describing. It drafted a response letter with all the specific tax code references that proved I shouldn't have been charged the penalty. The letter worked and I got a notice a few weeks later saying the penalty was removed! What I really liked was that it explained WHY I qualified for safe harbor in language I could understand, so when I eventually had to talk to someone at the IRS, I actually knew what I was talking about instead of just being confused.

Ok so I feel like I need to follow up about my experience with taxr.ai after my skeptical comment. I decided to give it a try with my underpayment penalty situation (similar to OP's) and was actually impressed. The analysis was spot on - it identified that I had paid 108% of my previous year's tax liability but was still charged penalties incorrectly. The letter it generated included specific calculations and referenced the exact sections of the tax code that applied to my situation. I sent it in last month and just got confirmation that my penalty was removed! Saved me $290 in penalties that I shouldn't have been charged in the first place. Definitely worth trying if you're dealing with underpayment interest issues.

If you're still getting nowhere after sending a letter, I highly recommend using https://claimyr.com to actually get through to an IRS agent without the crazy wait times. I was getting absolutely nowhere with written correspondence about my underpayment penalty issue, and realized I needed to actually talk to someone. The problem is the IRS phone lines are basically impossible - I tried calling six different times and kept getting the "we're too busy, call back later" message. Then I found Claimyr, which basically waits on hold for you and calls you back when an actual human IRS agent is on the line. You can see a demo of how it works here: https://youtu.be/_kiP6q8DX5c When I finally got through, I explained my safe harbor situation to the agent, and she was able to verify my withholding met the previous year's requirement and removed the penalty while I was on the phone. Saved me hours of frustration!

I have to eat my words about Claimyr. After dismissing it as a probable scam, my underpayment penalty letter was denied and I was desperate to talk to someone at the IRS before paying $430 I didn't think I owed. I tried the service yesterday, and within about 40 minutes, my phone rang and I was connected to an actual IRS agent. The process was exactly as described. Explained my situation about meeting the safe harbor requirement by having withholding that covered 105% of my previous year's tax liability. The agent reviewed my records, agreed I met the safe harbor rule, and removed the penalty on the spot. I was fully prepared to come back here and report that it was a scam, but instead I'm kind of amazed that it actually worked. Saved me hundreds of dollars and hours of frustration.

Just wanted to add that you can also file Form 843 "Claim for Refund and Request for Abatement" to request removal of underpayment penalties. Make sure to include all your documentation showing you qualified for the safe harbor provision. I did this last year and it took about 7 weeks, but the penalties were removed and I got my money back.

Has anyone had success getting penalties removed because of personal hardship? I had a medical emergency in 2023 that drained my savings which is why I couldn't make estimated payments, even though I knew I wasn't withholding enough.