Tax Underpayment Penalty

  • Taxes are “pay-as-you-go”.  Payment of taxes should roughly match timing of income.  If it doesn’t, there may be the dreaded Underpayment Penalty.
  • Officially, the penalty is named: The Underpayment of Estimated Tax by Individuals Penalty (UOETBIP).
  • IRS will notify TP by mail if there is an UOETBIP.
  • Avoid the penalty if:

    • You owe less than $1000.
    • You paid at least 90% of the tax shown on the return for the taxable year or, if less…
    • You paid 100% of the tax shown on the return for the prior year.  (If your adjusted gross income (AGI) for 2023 was more than $150,000 ($75,000 if your filing status for 2024 is married filing separately), substitute 110% for 100%.)

  • Compute the penalty on Form 2210.  
  • Instructions for Form 2210.   10 pages.
  • Paying by April 15 may reduce the likelihood of an underpayment penalty.  (IMHO)

TaxLinx 11/30/2025


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