If you didn’t pay enough estimated tax throughout the year, you may be subject to an underpayment penalty. The penalty is calculated based on the underpayment rate, which is the federal short-term rate plus 3 percentage points (7% for the quarter beginning April 1, 2025). The penalty applies to the period of underpayment from the due date of the estimated tax payment until the earlier of the due date of the return or the date the tax was paid. Refer to IRC Section 6654 for more details on the estimated tax penalty. Certain exceptions may apply, such as if you had no tax liability in the prior year.
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