Underpayment Penalty

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DEFINITION of 'Underpayment Penalty'

A tax penalty enacted on an individual for not paying enough of his or her total estimated tax and withholding. If an individual has an underpayment of estimated tax, they may be required to pay a penalty (on Form 2210).

BREAKING DOWN 'Underpayment Penalty'

To avoid an underpayment penalty you must pay either 100% of last year's tax or 90 percent of this year's tax by combining estimated and withholding taxes.

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RELATED FAQS
  1. How are non-qualified variable annuities taxed?

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    The Old-Age, Survivors and Disability Insurance program, or OASDI, tax is calculated by taking a set percentage of your income ... Read Full Answer >>
  3. What is the importance of calculating tax equivalent bond yield?

    Fixed-income investors measure portfolio returns using yields. Since most bonds do not produce high returns like equity markets, ... Read Full Answer >>
  4. Where can I find a good withholding tax table on the Internet?

    An Internet search for the most current withholding tax rates will likely result in numerous articles about how to pay the ... Read Full Answer >>
  5. What is the difference between a single and a married withholding tax?

    The difference between the amount of income tax withheld for single versus married persons in the United States depends on ... Read Full Answer >>
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