The name of the penalty may be a bit misleading. It is a penalty not paying as much as you are supposed to throughout the year, based on your income. Your payments can be made via withholding from you paychecks or retirement, or they can be made via quarterly estimated tax payments. If you are a W-2 employee and you don't have enough tax withheld throughout the year, and you don't make estimated payments to make up for it, then you are subject to a penalty for "underpayment of estimated tax".
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