While the IRS will send you a notice about the penalty themselves, you can use IRS Form 2210 to determine whether you owe a penalty, calculate how much that penalty will be, and pay your penalty using your tax return.
In most cases you won’t have to file Form 2210, since the IRS will figure your penalty for you. However, if you wish to request a waiver for part or all of your penalty, or you think using a different accounting method could lower your penalty, you will have to file it.
What’s the purpose of IRS Form 2210?
In short, 2210 is a form taxpayers can use to figure out whether they underpaid their estimated taxes and calculate the penalty they owe.
If you file Form 1040 and expect to pay more than $1,000 in annual income tax, you’ll have to pay that amount in quarterly installments to the IRS, which you’ll calculate using Form 1040-ES if you’re an individual and Form 1120-W if you’re a corporation.
If you underpaid your estimated tax, you can use IRS Form 2210 to determine whether you owe a penalty and calculate how much that penalty will be.
If you’re a farmer or fisherman, there are special rules around your underpayment penalties, and you’ll have to use Form 2210-F instead.
What is an underpayment of estimated tax?
It just means that the amount you paid towards your quarterly estimated tax was less than what you actually owe the IRS, resulting in an underpayment penalty.
How much is my underpayment penalty?
How much you pay will depend on how much tax you owe, how much you underpaid by, how many times you underpaid during the year, the interest rate for the penalty, and also how many days you were late paying. You can calculate your exact penalty using the worksheet on page 7 of the instructions to Form 2210.
If your income varies a lot, you can use Schedule AI to use the annualized income installment method, which might help you decrease a penalty for periods with low income.
If you underpaid because of a disaster or other unexpected event, or you’re above the age of 62 or became disabled and had reasonable cause to pay late or underpay, you might be able to apply to have some or all of your penalty waived (see Part II below for more).
Sections of Form 2210 and instructions for filling them out
Form 2210 is helpfully divided into four different sections: an introductory flowchart which will help you determine whether you need to file Form 2210 in the first place, and Parts I-III, which help you figure your penalty.
There’s also Schedule AI, which you should use if your penalty is reduced or eliminated when calculated using the annualized income installment method, which is common for businesses with variable or seasonal income.
The Flowchart
Follow the instructions in this flowchart to determine two things:
- Whether you owe a penalty for underpaying your estimated tax.
- Whether you must file Form 2210 with the IRS.
If you file Form 1040, 1040-NR, 1040-SR or 1041 with the IRS, you’ll need to have it on hand to get started.
Part I: Required annual payment
You’ll use lines 1-9 of this section to calculate your required annual tax payment and determine whether that number is greater than your withholding taxes (line 6). If it isn’t, then you don’t owe a penalty and you won’t have to file Form 2210–unless Box E in Part II applies to you.
If line 9 is greater than line 6, you might owe a penalty, in which case the IRS will calculate your penalty and send you a bill.
Remember that you don’t have to calculate your penalty or file Form 2210 with the IRS unless you check any of the boxes in Part II.
Part II: Reasons for filing
You might be able to have some or all of your penalty waived if the IRS finds that the underpayment was due to a casualty, disaster or other unusual event, or if you’re older than 62 or disabled and the underpayment happened for a reasonable cause.
If you plan on applying to have your penalty waived, you’ll have to check box A or B in Part II and file Form 2210 with the IRS.
Box C: Annualized Income Installment Method
If your penalty is decreased or eliminated when you calculate it using the annualized income installment method, check box C in Part II, fill out Schedule AI, and file Form 2210 with the IRS.
Box D: You Treat Withholding as Paid on Date Actually Withheld
Sometimes your penalty is lower if you treat federal income tax withheld as being paid on the day it was actually withheld, rather than on the payment due dates. If this is true for you, check Box D of Part II.
Box E: You're Filing a Joint Return
Check this box if you filed or are filing a joint return and line 8 in Part I is smaller than line 5, in which case you must file page 1 of Form 2210 with the IRS.
Part III: Penalty computation
This part is divided into two sections: section A, which you’ll use to calculate the total amount of your underpayment, and section B which you’ll use to calculate the underpayment penalty itself.
Section A: Figure your underpayment
First, use line 10 and columns a) through d) to write out the required installments for the dates in each column, which will probably be one fourth of what you wrote in line 9 in Part I. Then use line 11 to do the same for your estimated tax paid and withheld.
After you’ve done that, complete lines 12-18, but only do so one column at a time starting with column a). The resulting amounts in lines 17 and 18 will tell you whether you overpaid or underpaid for that payment due date.
Section B: Figure the penalty
Finally, if you have an underpayment, use the worksheet for Form 2210, Part II, Section B, which is located on page 7 of the instructions to Form 2210, to calculate the total penalty amount and record it on line 19.
Schedule AI
If your business is seasonal or your income varied over the course of the year for any other reason, you might be able to lower your payments by using the annualized income installment method. To do so, you’ll need to complete Schedule AI, which is divided into two parts.
Part I: Annualized income installments
Line 1
Use this line to figure your total income minus adjustments to income for each payment period. Remember to include the deductible part of your tax here if you’re self-employed.
Line 2
This line is already completed for you, and includes the annualization amounts you’ll use in the calculation. If you’re an estate or trust, use the following amounts instead: 6, 3, 1.71429, and 1.09091.
Line 6
For each column, multiply line 4 by line 5 if you itemized deductions and record the result here.
Line 9
Record your deduction for qualified business income here, which you can calculate using Form 8995.
Line 16
Here you’ll enter any other taxes you owed because of events that happened in the relevant period, which will include the taxes you entered on line 2 of Part I Form 2210, tax from Form 4972, tax from Form 8814, and any alternate minimum tax (AMT) which is calculated using Form 6251.
Line 18
Here you’ll enter any credits due to events that occurred for those periods, which are the same credits you used to determine the amounts on lines 1 and 3 of Part I, Form 2210. Be sure to annualize any income or deductions used to determine those credits.
Part II: Annualized self-employment tax
Complete this section if you earned self-employment income to calculate your annualized self-employment tax.
Line 28
Multiply your net profit for each period by 0.9235 to determine your net earnings for self-employment here.
Line 30
If you filed Form 4137, include the amount you recorded on line 10 of that form. If you filed Form 8919, include the amount you recorded on line 10 of that form.
When do I need to file Form 2210?
If you’re applying to have an underpayment penalty reduced or waived, the IRS will review the information you send them and make a decision on a case by case basis.
Taxpayers are generally not required to file Form 2210 so there is no official filing deadline for the form, however keep in mind that penalties for underpayments are assessed for each of the following quarterly due dates in the table below:
If you can’t pay the full amount of your penalty on time, you might consider applying for a payment plan with the IRS.
