Why would I owe a tax underpayment penalty?
To avoid underpaid taxes and a subsequent tax underpayment penalty, you should have paid taxes as you received income during the year through one of these methods:
- Withholding taxes from your paycheck
- Filing quarterly estimated payments
If you didn’t pay enough taxes during the year, you’ll have a balance due. You’ll also owe an underpayment penalty if both of these apply:
- Your balance due is more than $1,000.
- The tax you paid was less than the smaller of:
- 90% of your current tax liability
- 100% of your prior-year tax liability
- 110% of your prior-year tax liability if your adjusted gross income (AGI) last year was more than $150,000, or $75,000 if you and your spouse file separately.
To avoid this penalty in the future:
- Increase your W-4 withholdings with your employer.
- Pay quarterly estimated taxes using Form 1040-ES.
Learn about the IRS payment option called a guaranteed installment agreement. Read the IRS definition and get more insight from H&R Block.
If you owe taxes and need a little more time to pay the full balance, you can request a short-term extension of time to pay your taxes from the IRS.
Learn about IRS direct debit installment agreements (DDIA), which can get you a lower user fee. Get the facts from the tax experts at H&R Block.
Learn about the IRS penalty for substantial understatement of tax. Read the IRS definition and get more insight from the experts at H&R Block.