Yes, technically that is correct. However there are ways to eliminate underpayment penalty by using the information below. It's wise to hang on to as much money as you can until you are required to make a payment.
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 2023 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.
Key Information: If you do need to pay estimated tax payments for your other income or to meet the rules above, you must make them evenly throughout the year. Even a refund on a tax return could still have an underpayment penalty if the payments are paid late.
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