An underpayment penalty is a fee imposed by the Internal Revenue Service (IRS) when an individual or business fails to pay enough estimated taxes during the year. Estimated taxes are payments made throughout the year based on your expected tax liability. If the total amount of estimated taxes paid is less than the amount of tax you actually owe, you may be subject to an underpayment penalty.
There are several ways to avoid an underpayment penalty. One is to make sure that you are withholding enough taxes from your paycheck. You can use the IRS withholding calculator to determine how much you should be withholding. Another way to avoid an underpayment penalty is to make estimated tax payments throughout the year. Estimated tax payments are due on April 15, June 15, September 15, and January 15 of the following year.
