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Underpayment penalty

The penalty is the IRS’s not-so-subtle reminder that taxes are due as income is earned, not just on April 15 of the following year. Basically, it works like interest on a loan, with the penalty rate applied to the amount of estimated tax due, but unpaid by each of four payment dates during the year. The penalty rate is set by the IRS and can change each quarter. There are several exceptions to the penalty. See Estimated tax.