There are a few strategies taxpayers can take to make sure they pay enough taxes throughout the year to avoid an underpayment penalty.An underpayment penalty is a charge the IRS imposes on taxpayers who didn't pay all of their estimated income taxes for the year or who paid their taxes late. An und erpayment penalty will apply if:A person didn’t pay at least 90% of the tax on their current-year return or 100% of the tax shown on the prior year’s return.A person paid their estimated taxes late.If a person works for an employer, they may be hit with this penalty because the tax that was withheld from their paycheck during the year didn’t cover their full tax liability. An independent contractor may be penalized for missing or underpaying one of the quarterly estimated tax payments.This penalty only applies to those who owe $1,000 or more in unpaid taxes. If a person is subject to this charge, they'll receive an IRS notice in the mail.Note that there are special rules for taxpayers whose adjusted gross income for the previous year was more than $150,000, or $75,000 if married and filing separately. Rather than 100%, you must have paid 110% of the tax on your prior year’s return to avoid the underpayment penalty.Underpayment penalty rateThe underpayment penalty is calculated by multiplying how much tax a person owed for each quarter by the interest rate for that quarter.For the quarter through March, the underpayment penalty interest rate is 7%, which remains the same as it has been throughout 2025.Avoiding the penaltyIf a person paid at least 90% of the tax on their current-year return or 100% of the tax shown on the prior year’s return, they can avoid the underpayment penalty for estimated taxes.Another way for a person to avoid an underpayment penalty in the future is to adjust withholdings on their W-4 if they have an employer. Reducing the number of dependents or adding an extra withholding amount on line 4(c) can help ensure a person is having enough tax withheld from their paycheck to cover their tax bill. One can use the IRS tax withholding estimator on its website to check whether they're on track.An independent contractor who pays quarterly estimated taxes needs to stay on top of each quarter's due date and make sure they're accurately calculating and paying what they owe.Exceptions to the underpayment penaltyThe IRS may waive an underpayment penalty under certain circumstances, such as when:A person had the majority of their income tax withheld at the beginning of the year.A person has varying income throughout the year.A person became disabled and had reasonable cause to underpay.A person retired in the last two years after reaching age 62 and had reasonable cause to underpay.A person went through an unforeseen circumstance, like a disaster or a casualty.A person is a farmer or fisherman who paid all tax due by March 1.If a person can’t pay their bill on timeA tax return should be filed by the April 15 deadline, even if a person can’t afford to pay their bill. The IRS imposes a failure-to-file penalty on taxpayers who file late or don’t file, a fee that's typically 5% of any unpaid taxes for each month or partial month, up to a maximum of 25%.It’s also a good idea for a person to pay as much as they can when they file. On top of the underpayment interest charge, one could face a late payment penalty — sometimes called the failure-to-pay penalty. This is an additional charge of 0.5% of any unpaid taxes for each month or partial month the tax goes unpaid, capped at 25% of a person's tax bill.If this all sounds a bit overwhelming, there is some good news. The IRS offers payment plans that allow taxpayers to pay their bill over time. Getting on a payment plan can help reduce penalties. For instance, the late-payment penalty is cut in half. It can also prevent a tax levy or lien. ...read more read less