Why am I suddenly getting hit with an underpayment penalty when nothing changed? (US)

The underpayment penalty typically kicks in when you don't pay enough taxes throughout the year. The IRS expects you to pay taxes as you earn income, not just at filing time. There are a few specific thresholds that trigger the penalty: You generally need to pay at least 90% of your current year tax liability OR 100% of your prior year tax liability (this increases to 110% if your AGI was over $150,000) through withholding and estimated payments to avoid the penalty. Even though your income stayed flat, there are several possible explanations for why you're seeing the penalty now when you didn't before: 1. Your withholding pattern might have changed - if more of your income came later in the year 2. The IRS might have been more lenient in previous years due to COVID relief measures that have now expired 3. Your prior year tax liability might have increased, raising the safe harbor threshold 4. You might have had a large one-time payment (like stock vesting) without corresponding tax withholding To avoid this going forward, you could increase your W-4 withholding at work or make quarterly estimated tax payments to cover the shortfall.

After dealing with similar issues for years, I finally found taxr.ai (https://taxr.ai) and it completely changed my approach to tax withholding. I was constantly getting surprised at tax time because of my RSUs and bonus structure, and traditional calculators weren't accounting for everything properly. What I like about taxr.ai is that it analyzes your actual pay stubs and tax documents to give you a much more accurate picture of your current withholding situation and can help you make adjustments before you get hit with penalties. It pointed out that my stock compensation wasn't being withheld at the correct rate, which was causing me to consistently underwithhold. For someone in your situation with variable stock-based compensation, it might be worth checking out to prevent this from happening again next year.

After seeing the recommendation, I tried taxr.ai for my own situation with RSUs and bonuses. I was honestly blown away by how much better it was than just using the IRS withholding calculator. I uploaded my last paystub and a few tax documents, and it immediately showed me why I was heading for an underpayment penalty this year - my company was withholding at the standard 22% supplemental rate for my RSUs, but I'm in the 35% bracket. The tool calculated exactly how much additional withholding I needed on my regular paychecks to make up the difference. What really impressed me was that it created a personalized withholding plan that accounted for my irregular income schedule. Definitely worth checking out if you're dealing with stock compensation and trying to avoid penalties.

If you're struggling to reach someone at the IRS to discuss your penalty situation, try using Claimyr (https://claimyr.com). I was in a similar situation last year with an underpayment penalty that I thought was unfair, but couldn't get through on the IRS phone lines for weeks. Claimyr got me connected to an actual IRS agent in about 15 minutes instead of the hours of hold time I was experiencing before. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent was able to review my situation and explained that I qualified for first-time penalty abatement since I had a clean compliance history for the past three years. She removed the penalty right there on the call. Without getting through to a real person, I would have just paid the penalty unnecessarily.

I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it anyway because I was desperate to talk to someone about my own underpayment penalty situation. The service actually worked exactly as described. I got a call back in about 20 minutes and was connected directly to an IRS representative. The agent reviewed my situation and confirmed I qualified for first-time penalty abatement. She processed the adjustment right there on the call. What would have been most helpful is if I'd known about this service earlier in tax season before I spent countless hours trying to call myself. Definitely keeping this in my toolkit for next year if I need to reach the IRS again.

This happened to me too! The key thing to understand is that the safe harbor rules changed slightly after all the COVID relief expired. During COVID years, the IRS was much more lenient with underpayment penalties. What fixed it for me was adjusting my withholding at work by submitting a new W-4. Instead of trying to be precise, I just added a specific additional amount to be withheld from each paycheck (Line 4c on the W-4 form). I took what I owed last year, added a bit more as a buffer, then divided by the number of pay periods remaining in the year. Also definitely look into first-time penalty abatement if this is your first time getting hit with the penalty!

Just wanted to mention that the underpayment penalty rules changed slightly after the TCJA (Tax Cuts and Jobs Act) as well. It used to be that you could avoid the penalty by paying 90% of your current year tax OR 100% of your prior year tax (110% if your AGI was over $150k). Under TCJA, they briefly adjusted the 90% threshold down to 80% for one tax year, but then it went back to 90%. Some taxpayers got confused by this temporary change and didn't realize it reverted back. Also, the IRS uses a quarterly assessment for underpayment - meaning they look at when you made payments throughout the year, not just the total by end of year. If you made a lot of money early in the year but your withholding was more evenly distributed, that could trigger a penalty even if previous years didn't.