The Internal Revenue Service (IRS) assesses a penalty when taxpayers do not pay enough of their tax liability throughout the year, either through withholding from wages or estimated tax payments. This penalty serves to ensure that tax obligations are met consistently, rather than solely at the year’s end. The calculation involves several factors, including the amount of the underpayment, the period during which the underpayment existed, and the applicable interest rate for underpayments.
Penalties and interest charges exist to encourage timely tax compliance. These measures help maintain the integrity of the tax system and ensure that funds are available for government operations throughout the year. Historically, underpayment penalties have been a standard tool used to promote consistent tax remittance, evolving alongside changes in tax law and regulations.
