What statements about estimated tax payments and underpayment penalties is true?

It is true that estimated tax payments are generally required for businesses and individuals who have income that is not subject to withholding. It is also true that if you do not pay enough tax throughout the year either through withholding or estimated tax payments you may be subject to an underpayment penalty. The following points provide more information about estimated tax payments and underpayment penalties:

• Estimated tax payments are usually payments made quarterly but the payment dates and amounts vary depending on the type of income.
• An underpayment penalty is typically assessed if the total of your estimated tax payments and withholding is less than 90% of the tax due for the year.
• The penalty amount is generally equal to the amount of tax you underpaid multiplied by the penalty rate.
• The penalty rate is typically 0.5% per month and can accumulate up to 25% of the unpaid amount.

It is important to note that the IRS may waive the underpayment penalty if you can show that the underpayment was due to reasonable cause and not willful neglect.