What penalty may apply if you do not pay sufficient tax throughout the year?

The penalty that may apply if you do not pay sufficient tax throughout the year is known as the underpayment of estimated tax penalty. This penalty is assessed when taxpayers do not pay enough taxes through withholding or estimated tax payments, which are required to cover their total tax liability for the year. The IRS requires taxpayers, especially those who have income not subject to withholding (like self-employment income or interest), to ensure that they either pay sufficient tax throughout the year or make estimated tax payments to avoid underpayment.

This underpayment can occur for various reasons, such as a significant change in income or not having enough taxes withheld from paychecks. By addressing the requirement for estimated tax payments, the IRS aims to facilitate timely tax contributions throughout the taxable period instead of at the year-end when tax returns are filed.

In contrast, other penalties listed, such as the late payment penalty, are typically associated with failing to pay taxes owed by the due date, while the accuracy-related penalty pertains to discrepancies in reported income or deductions. The fraud penalty involves willfully filing false information to evade tax obligations. These penalties focus on different aspects of tax compliance rather than insufficient tax payment throughout the year.