That indicates there was a tax penalty.
The underpayment penalty will be assessed if any of these apply:
- "If you don’t pay enough tax through withholding and estimated tax payments, you may have to pay a penalty."
- "You also may have to pay a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return."
To avoid the under payment penalty:
- The amount you owe is less than $1,000, after subtracting withholding and refundable credits.
- You paid 90% of the tax that you owed for the current year.
- You paid 100% of the previous year tax, (110% for higher incomes).
- If your previous year's adjusted gross income was more than $150,000 you will have to pay in 110% of your previous year's taxes to satisfy the "safe-harbor" requirement.
"Typically, underpayment penalties are 5% of the underpaid amount, and they're capped at 25%.
Underpaid taxes also accrue interest at a rate that the IRS sets annually."
To avoid this situation it is recommended that you adjust your W-4 with your employer or pay estimated taxes.
Underpayment of Estimated Tax by Individuals Penalty
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