As I understand if you owe more than $1,000 on your federal tax return and do not make estimated quarterly payments then the IRS charges an underpayment penalty. From what I have seen it appears the underpayment penalty is around 1-1.5% of the total owed. I am wondering if it is better off to adjust the W4 then of course invest the extra funds even though it should have been taxed right away and just take the penalty since more than likely one would earn more than that on the market. Maybe I am misunderstanding, with people always saying try to adjust your W4 so that your you do not owe anything additional when you file your federal return but if the underpayment penalty is at best maybe 1.5% (from what I have seen) then is it worth the risk just to take the penalty?