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This is the first year I have received a penalty for underpayment of my estimated tax. Does that mean my employer did not deduct my income properly?

My company switched to a new ERP system and the additional money I was having withheld did not transfer into the new system and I did not catch it. I knew I would have to make a payment but I do not understand the underpayment penalty.
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2 Replies
NicolleR1
Employee Tax Expert

This is the first year I have received a penalty for underpayment of my estimated tax. Does that mean my employer did not deduct my income properly?

The IRS defines taxes as "Pay as you go". This means that you are responsible to pay the proper amount of taxes on each paycheck accordingly. If you didn't have enough withholdings from your earnings throughout the year, the IRS could assess an underpayment penalty. 

Click on the link below for a detailed explanation 

Underpayment of estimated tax by individuals penalty

This is the first year I have received a penalty for underpayment of my estimated tax. Does that mean my employer did not deduct my income properly?

I have read these articles before but none of them explain why I am receiving a penalty this year when I never have before.  I understood I would owe money since I have had to pay for the past few years.  I have never received a penalty for 'underpayment' and there have been no significant changes in my earnings on W-4 elections.  I do not make payments quarterly, as mentioned in the link, so how am I able to make sure this does not happen again when I cannot determine why it is happening now?

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