There are underpayment penalties and then there is also interest charged on the penalty.
The Underpayment of Estimated Tax by Individuals Penalty applies to individuals, estates, and trusts if you don't pay enough estimated tax (quarterly) on your income or you pay it late. The penalty may apply even if you are owed a refund.
They calculate the penalty based on:
- The amount of the underpayment
- The period when the underpayment was due and underpaid
- The interest rate for underpayments that they publish quarterly
They charge interest on penalties. The date from which they begin to charge interest varies by the type of penalty. Interest increases the amount you owe until you pay your balance in full. For more information about the interest charged on penalties, see Interest
The law allows the IRS to waive the penalty if:
- You didn't make a required payment because of a casualty event, disaster, or other unusual circumstance and it would be inequitable to impose the penalty, or
- You retired (after reaching age 62) or became disabled during the tax year or in the preceding tax year for which you should have made estimated payments, and the underpayment was due to reasonable cause and not willful neglect.
For more information, refer to Penalties and the Instructions for Form 2210.
Penalty Options in TurboTax
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