Immune to the Underpayment Penalty
Do you owe the IRS money? Even if you failed to pay enough tax throughout the year, you may not have to pay the penalty if you fit one of these exceptions.

If you owe $1,000 or more in tax when you file your 2005 return -- and the amount is more than 10% of your total tax bill for the year -- the IRS will assume that you also owe a penalty for failing to pay enough tax during the year via withholding or quarterly estimated tax payments. The penalty is the IRS's not-so-subtle reminder that taxes are due as income is earned, not in April of the following year.
The penalty works a lot like interest on a loan. The rate is currently 7%.
But before you pay the penalty, see if you can fit into one of the exceptions that protects you from it.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
- If you paid in at least 90% of your actual tax bill for 2005 (and any required estimated payments were made on time), for example, the penalty doesn't apply.
- If your payments during 2005 equaled the amount of your 2004 tax bill, forget the penalty -- no matter how much extra you owe when you file. However, as with so many tax rules, there is an exception to the neat 100%-of-last-year's-tax exception. If your 2005 adjusted gross income was more than $150,000, you had to pay in at least 110% of your 2004 tax liability to avoid the underpayment penalty.
Bottom line: Before you pay an underpayment penalty, check the rules carefully for a way around it.
And, even if you owe the penalty, don't worry about tackling the complicated Form 2210 to figure out how much you owe. The IRS will be happy to crunch the numbers for you -- you can double-check the bill when you get it. Letting the agency do that will allow you to hold on to your money for a bit longer. The interest clock stops running as soon as you pay your tax bill with your return; there's no interest charged on the penalty amount if you pay it by the date set on the bill.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

-
Higher Summer Costs: Tariffs Fuel Inflation in June
Tariffs Your summer holiday just got more expensive, and tariffs are partially to blame, economists say.
-
Don’t Miss Alabama Tax-Free Weekend 2025
Tax Holiday Ready to save? Here’s everything you need to know about the 2025 back-to-school Alabama sales tax holiday.
-
Higher Summer Costs: Tariffs Fuel Inflation in June
Tariffs Your summer holiday just got more expensive, and tariffs are partially to blame, economists say.
-
Don’t Miss Alabama Tax-Free Weekend 2025
Tax Holiday Ready to save? Here’s everything you need to know about the 2025 back-to-school Alabama sales tax holiday.
-
Parents Prepare: Trump's Megabill Brings Three Crucial Tax Changes
Tax Changes Are you a parent? The so-called ‘One Big Beautiful Bill’ (OBBB) impacts several key tax incentives that can affect your family this year and beyond.
-
‘I Play Pickleball in Retirement.’ Is It HSA-Eligible?
Retirement Tax Staying active after you retire may be easier with these HSA expenses. But there’s a big catch.
-
Mississippi Tax-Free Weekend 2025
Tax Holiday Just in time for Prime Day, Mississippi celebrated a tax holiday in July. Find out what back-to-school essentials were included.
-
Ten Cheapest Places to Live in Virginia
Property Taxes The Commonwealth of Virginia has some cheap places to live. Here are a few if you hate paying property taxes.
-
2025 SALT Cap Could Hurt Top 'Hidden Home Cost'
Tax Deductions The GOP tax bill could make hidden homeowner costs worse for you. Here’s how.
-
Retire in the Bahamas With These Three Tax Benefits
Retirement Taxes Retirement in the Bahamas may be worth considering for high-net-worth individuals who hate paying taxes on income and capital gains.