Underpayment Penalty

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Underpayment Penalty

A penalty that a taxpayer must pay if he/she fails to pay enough in estimated taxes and withholding. In order to reduce the incentive for persons and companies to pay taxes late, the IRS has instituted an underpayment penalty. In order to avoid the underpayment penalty, one must either pay 100% of his/her tax liability for the previous year or 90% of the liability for the current year.
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