What Is a Tax Underpayment Penalty?

By Adam Levy – Updated Feb 26, 2025 at 3:28 PM

Key Points

Tax underpayment penalty applies if taxes aren't withheld properly from paychecks or estimated taxes are late.
IRS Form 2210 helps taxpayers determine if they owe a penalty, often calculated automatically by most tax software.
To avoid penalties, ensure withholdings and estimated taxes meet the required percentages of past or current year's tax liability.

A tax underpayment penalty is a fine from the Internal Revenue Service (IRS) for failing to pay enough in taxes throughout the year through paycheck withholdings and quarterly estimated taxes. The fine may still apply, even if the IRS owes you a refund in cases when you paid late.

But the fine is avoidable, and understanding when the IRS will or won't impose the underpayment penalty can help you save money when it comes time to file your taxes.

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An alarm clock resting atop little wooden blocks that spell out TAX and sitting on a desk with books and a calculator. — Image source: Getty Images.

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About the Author

Adam Levy is a contributing Motley Fool stock market analyst covering technology, consumer, and financial stocks and how policy, economic, and consumer trends shape personal finance, Social Security and retirement savings. Before The Motley Fool, Adam was a financial advisor at Edward Jones. He studied finance and electrical engineering at Carnegie Mellon University.

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