When might a taxpayer incurr a penalty for underpayment?

A taxpayer may incur a penalty for underpayment primarily when they do not pay enough in estimated taxes throughout the year. This is particularly relevant for individuals who have income that is not subject to withholding, such as self-employed individuals or those with significant investment income. The IRS requires taxpayers to pay a certain percentage of their estimated tax liability by specific deadlines throughout the year. If the payments made fall short of this amount, the taxpayer may face an underpayment penalty.

The underpayment penalty serves as an incentive for taxpayers to accurately estimate and pay their tax obligations timely, ensuring that they do not owe a large sum at tax time. Taxpayers can avoid this penalty by either ensuring their total payments equal at least 90% of their current year tax liability or 100% (110% for higher-income taxpayers) of their previous year's tax liability through withholding and estimated payments.

The other scenarios mentioned do not directly relate to the obligation of making estimated tax payments or the calculation of a tax liability throughout the year. Therefore, while they may have implications for overall tax compliance or accuracy, they do not specifically result in underpayment penalties like insufficient estimated tax payments do.