In the United States, the income tax is a system in which taxes are paid as income is
received during the year, which means that you must pay income tax as you earn or
receive your income during the year. You can do this by withholding tax or making
estimated tax payments. If you didn’t pay enough in tax during the year, either through
withholding or estimated tax payments, you may have to pay an estimated tax
underpayment penalty. Generally, most taxpayers will avoid this penalty if they owe less
than $1,000 in tax after subtracting withholdings and refundable credits, or if they paid
withholdings and estimated taxes of at least 90% of the tax for the current year or 100%
of the tax indicated in the previous year’s return, whichever amount is less. There are
special rules for farmers and fishermen, certain household employers, and certain
higher-income taxpayers.

Types of Penalties:

These are some penalties we send notices and letters about:

• Information Return applies to taxpayers who don’t file or furnish their required
  information return or payee statement correctly by the due date.
• Failure to File applies when you don’t file your tax return by the due date.
• Failure to Pay applies when you don’t pay the tax you owe by the due date.
• Accuracy-Related applies when you don’t claim all your income or when you
  claim deductions or credits for which you don’t qualify.
• Erroneous Claim for Refund or Credit Penalty applies when you submit a claim for
  refund or credit of income tax for an excessive amount and reasonable cause
  does not apply.
• Failure to Deposit applies when you don’t pay employment taxes accurately or on time.
• Tax Preparer Penalties apply to tax return preparers who engage in misconduct.
• Dishonored Checks applies when your bank doesn’t honor your check or other
  form of payment.
• Underpayment of Estimated Tax by Corporations applies when you don’t pay
  estimated tax accurately or on time for a corporation.
• Underpayment of Estimated Tax by Individuals applies when you don’t pay
  estimated tax accurately or on time as an individual.
• International Information Reporting applies to certain taxpayers who fail to timely
  and correctly report foreign sourced financial activity

The law allows the IRS to remove the penalty, if:

• You failed to make the required payment due to a casualty, disaster, or other
  unusual circumstance and it would be unfair to impose the penalty.
• You retired (after reaching age 62) or became disabled during the tax year or in
  the preceding tax year in which you are required to make the estimated
  payments and the underpayment is due to reasonable cause and not willful
  negligence.
• You can avoid a penalty by filing accurate returns, paying your tax by the due
  date, and furnishing any information returns timely. If you can’t do so, you can
  apply for an extension of time to file or a payment plan.

Penalties Internal Revenue Service. Available at https://www.irs.gov/payments/penalties