What is the penalty for not paying estimated taxes?

The estimated tax penalty (also called the underpayment penalty) applies to individuals, sole proprietors, and other self-employed taxpayers who don't pay enough tax throughout the year through withholding or estimated quarterly payments. The penalty is calculated on Form 2210 and is essentially interest on the underpayment, charged at the federal short-term rate plus 3% for each quarter you underpaid. You can avoid the penalty if you paid at least 90% of the current year's tax, or 100% of the prior year's tax (110% if prior year AGI exceeded $150,000), or you owe less than $1,000 after subtracting withholding and credits. Estimated payments are due quarterly: April 15, June 15, September 15, and January 15. If you're self-employed or have significant non-wage income, setting aside 25-30% of each payment for taxes and making quarterly estimated payments is essential. The IRS may waive the penalty for newly retired or disabled taxpayers, taxpayers who had income unevenly distributed throughout the year, or casualties and disasters.