Intuit Alumni

Get your taxes done using TurboTax

The IRS is a pay-as-you-go system. If you underpay, you could be liable for a penalty.

An underpayment penalty applies to all forms of income, not just business income.  So, if you made a large stock sale this year or cashed in retirement or just didn't have enough withholding from a W2 job, you can be assessed a penalty (though in these "one time" income sources, you very well may qualify for an exception that is discussed below).

The penalty is based off your taxes during the year.  If you don't have enough withholding and you don't make estimated tax payments, then the IRS or your state can charge you with an underpayment penalty when you have a balance due at the end of the year.  It is not the same as the interest or penalty the IRS will charge you for not paying your balance due on time (by April 15th this year).