Penalties for Not Withholding Federal Tax

by Denise Caldwell ; Updated July 27, 2017

America employs a “pay as you go” system as the preferred method for collecting federal tax payments. All taxpayers are expected to either have federal tax withheld from their paychecks or mail estimated tax payments to the Internal Revenue Service. If you fail to pay your federal taxes or if you underpay your taxes, the IRS may assess you a penalty or contact your employer.


Your withholding is calculated based on how much you earn and the exemptions claimed on the W-4 you submitted to your employer. If you are self employed or receive additional income from dividends, alimony or gambling, you may be responsible for making estimated tax payments. A good way to measure whether or not you are having enough tax withheld from your paycheck is to use the IRS withholding calculator located on


To change your withholding, complete a new W-4, change the number of allowances and provide your employer with the revised W-4. Increasing your allowances lowers your tax liability, while decreasing your allowances increases your tax liability. Use the worksheet which accompanies the W-4 to help you determine the correct number of allowances.


If you fail to have enough federal tax withheld from your wages, you will owe additional tax to the IRS when you file your tax return. Unless you pay the total amount due to the IRS on or before April 15, you will be assessed a failure to pay penalty. If you repeatedly underpay your tax, the IRS will send your employer a “lock in” letter indicating the maximum number of allowances you are allowed. In addition, underpayment of estimated tax can also result in an estimated tax penalty. You are also subject to a penalty if you entered false information on the W-4 form you submitted to your employer.


If you were refunded all federal tax in 2010 and you expect to owe no federal tax in 2011, you can claim an exemption from all federal withholding.


Estimated tax payments are due to the IRS four times per year; April 15, June 15, September 15 and January 15. Keep in mind that your January 15 estimated tax payment will be posted for the previous year and not the year in which the payment is made. For example, if you make a January 15, 2011 estimated tax payment, it will count toward the 2010 tax year, not the 2011.

About the Author

Denise Caldwell is a finance writer who has been writing on taxation and finance since 2006. Her articles appear regularly on websites such as and She has taken what she learned while working at the IRS to provide readers with helpful tax and finance tips. Caldwell received a Bachelor of Arts in political science from Howard University.