It depends. Here are the rules to determine if an underpayment might occur. Compare your returns with the information below which will allow you to see if a penalty is not required in your case.
It is possible to have a refund and still have an underpayment penalty if the payments were not paid equally across all payment dates.
The IRS is a pay as you go system which means when the money is earned the tax is due.
Generally, you can avoid the penalty if your total timely estimated payments and withholdings are greater than or equal to the lesser of:
- 90% of the total tax after credits for the current year, or
- 100% of the total tax after credits in the prior year
- See one exception below.
You can also avoid the penalty if the amount you owe is less than $1,000 as long as any estimated tax payments you made are timely.
Note: High-income taxpayers. If your adjusted gross income (line 11 of your 2025 Form 1040) is greater than $150,000 (or $75,000 if you're married and file a separate return from your spouse), you can avoid a penalty by paying at least 110% of your total tax from the prior year.
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