The U.S. tax system is “pay as you earn,” and the IRS expects taxpayers to pay taxes on their income during the year they earn it, rather than waiting until they file their taxes early the following year. If you didn’t pay enough tax on your business income during the year, you may have to pay a penalty for underpayment. You may also be charged a penalty if your estimated tax payments are late, even if you receive a refund. You may be able to decrease the penalty if: You increase your withholding from employment income. You have uneven income during the year, so you annualize your income and make unequal payments during the year. You qualify for later payment due to a casualty or declared disaster. You retire after age 62 or become disabled during the year and didn’t make the payments due to reasonable cause.