If you’re filing an income tax return and haven’t paid enough in income taxes throughout the tax year, you may be filling out IRS Form 2210. This in-depth guide will explain, in detail, what you should know if you’re trying to determine whether you will be paying underpayment penalties when you file your tax return.
Let’s begin by discussing exactly what IRS Form 2210 is.
What is IRS Form 2210?
According to the IRS website, Form 2210 is known as Underpayment of Estimated Tax by Individuals, Estates and Trusts. In other words, if you’re filing a tax return on behalf of an individual, estate, or trust, you’ll use Form 2210 to determine:
- Whether the total of your withholding for the given tax year was sufficient
- Whether you owe an underpayment penalty
- The amount of the penalty, if there is one
What is IRS Form 2210 used for?
The purpose of this form is to determine whether the taxpayer owes an underpayment penalty. If the taxpayer owes a penalty, this form’s instructions contain a penalty worksheet to help the taxpayer determine the penalty amount.
What triggers an underpayment penalty?
Generally speaking, a taxpayer must estimated tax payments or have sufficient tax withholdings throughout the tax year to avoid an underpayment penalty. In most cases, the taxpayer must have paid the LESSER of the following:
- 90% of the current year’s tax liability
- There is an exception for fishermen and farmers. If qualified, they may use 66 2/3% percent of the previous year’s tax instead of 90%
- 100% of the previous year’s tax liability
- 110% for high income taxpayers whose adjusted gross income was more than $150,000 in the previous year ($75,000 for married taxpayers filing separately)
There are exceptions and waivers to the underpayment penalty, which are covered in the FAQ section below.
Who must file IRS Form 2210?
The top of Form 2210 contains a flowchart to help a taxpayer determine if they are required to file the form. According to the flow chart and the instructions, you do not owe a penalty if:
- Your total outstanding payment due is $1,000 or less, OR
- You are expecting a tax refund
How to file IRS Form 2210
In this section, we’ll go through each part of the form, step by step. That way, you’ll have a better understanding of how to complete the form.
There are 3 parts to this form (4, if you complete Schedule AI, for computing your tax obligations using the annual installment method).
Part I: Required Annual Payment
This section helps the filer determine the amount of tax that should have been paid throughout the year. We’ll go through this line by line.
This is your 2021 tax, after credits from your tax return. You’ll find this number on Line 22 on Form 1040, Form 1040-SR, or Form 1040-NR.
According to the IRS Form 2210 Instructions, If you’re filing on behalf of an estate or trust, you’ll use the number found on Line 3, Schedule G on Form 1041.
This line is the total of all additional taxes. This includes:
- Self-employment taxes
- Additional Medicare tax (if applicable)
- Net investment income tax (if applicable)
If you’re filing Form 1040, Form 1040-SR, or Form 1040-NR, you’ll find these taxes on Schedule 2:
- Line 4
- Line 8
- Lines 9-12
- Lines 14-16
- Line 17a
- Lines 17c-j
- Line 17l
- Line 17z
- Line 19
If you’re filing Form 1041, you’ll include the following taxes, found on Schedule G:
- Lines 4-6
- Line 8, but not including the following write-ins:
- Look-back interest due as identified on Form 8866
- Look-back interest due as identified on Form 8697
- Interest accrued on deferred tax under a section 1294 election for the year of termination
In either case, if you’re a household employer, you must include household employment taxes on Line 2, unless both of the following are true:
- You didn’t have federal income tax withheld from your income
- You wouldn’t be required to make estimated tax payments, even if the household employment taxes were not included
This line contains a variety of payments and refundable tax credits that you’ll subtract from Lines 1 and 2. This includes, but isn’t limited to:
- Earned income credit
- Additional child tax credit
- Refundable part of the American opportunity credit, as found on Form 8863, Line 8
- Recovery rebate credit
- Premium tax credit as found on Form 8962
- Credit for federal tax paid on fuels
- Qualified sick and family leave credits from Schedule(s) H and Form(s) 7202
- Refundable child and dependent expenses credit from Form 2441
- Health coverage tax credit
- Credit determined under section 1341(a)(5)(B)
Line 4-Current year tax
You’ll combine Lines 1-3 (subtracting Line 3 from the total of Lines 1 & 2) to arrive at your current year tax.
If this number is less than $1,000, then you’ll stop. You do not need to file IRS Form 2210, as you do not owe an underpayment penalty. If this is more than $1,000, then you’ll proceed to Line 5.
Multiply Line 4 by .90. This represents the 90% of the current tax liability previously discussed. You’ll compare this number to last year’s tax number represented in Line 8 below.
Line 6-Withholding taxes
You’ll include your withholding taxes (not estimated payments), represented on the following:
- Form 1040 or 1040-SR, Line 25d;
- Form 1040-NR, Lines 25d, 25e, 25f, and 25g;
- Also, Schedule 3 (Form 1040), Line 11, if you filed the above forms;
- Form 1041, Schedule G, Line 14.
On line 7, you’ll simply subtract Line 6 from Line 4. If this number is less than $1,000 then you can stop. You do not have to file IRS Form 2210, and you do not owe an underpayment penalty.
If this number is more than $1,000, then continue to Line 8.
You’ll need to enter your prior year’s tax, minus refundable credits. The Form 2210 Instructions contain detailed information on how to do this.
Line 9-Required annual payment
You’ll enter the smaller of either Line 5 or Line 8. This represents the required payment for the given tax year. From here, you’ll determine if Line 9 is greater than Line 6.
If Line 9 is greater than Line 6: You don’t owe a penalty, and you don’t have to file Form 2210 unless you select Box E in Part II (see below).
If Line 9 is less than Line 6: You might owe a penalty. However, you shouldn’t file Form 2210 unless one of the following occurs:
- If you select Box B, C, or D in Part II below, you must calculate your penalty and fill out Form 2210.
- If you select Box A or E, you will complete Page 1 and submit it with your tax return. You are not required to calculate your penalty as the IRS will do this for you and send you a bill for any unpaid amount.
Part II: Reasons For Filing
Part II explains to the IRS why the taxpayer is filing Form 2210. If you end up selecting none of these boxes, then do not file IRS Form 2210.
Box A: Seeking a waiver of your entire penalty
You’re seeking a waiver of your entire underpayment penalty, and qualify for a waiver for one of two reasons recognized by the Internal Revenue Service:
- You retired in the current or previous tax year at age 62 or older, or became disabled. Your underpayment was due to reasonable cause, and not willful neglect, OR
- The underpayment was caused by a casualty, disaster, or other unforeseen circumstance, and a penalty would be inequitable. Taxpayers who are victims of a federally declared disaster automatically qualify for penalty relief. The IRS automatically identifies qualifying victims.
- Other taxpayers, such as individuals or fiduciaries who are not covered, but whose books and records are in a federally declared disaster area, or relief workers working in a covered area may be eligible for relief, but will need to contact the IRS disaster hotline (866-562-5227) to notify the federal government of their eligibility.
People who are seeking a complete waiver do not need to compute their penalty. If there is a penalty, the IRS will calculate it and send the taxpayer a bill for unpaid taxes due.
If you are seeking a waiver due to retirement or disability, you’ll need to send documentation that shows your retirement (and your age on the retirement date) or the date you became disabled.
If you’re seeking a waiver due to a disaster or casualty that wasn’t federally declared, you’ll need to submit documentation, such as police reports or insurance claims.
Box B: Requesting a partial waiver of your penalty
You’re requesting a partial waiver of your penalty. You’ll complete Form 2210 through Line 18, without regard to the waiver.
From there, you’ll fill in the amount you want waived in parentheses next to Line 19, and subtract this number from Line 18. You’ll input the difference on Line 19.
Box C: Income varied during the year and penalty is reduced or eliminated when using the annualized income installment method.
If a significant amount of your income was due to a single event, and not evenly spread throughout the year, you may need to calculate your penalty using the annualized income installment method.
In that case, you’ll complete both parts of Schedule AI:
- Part I: Annualized Income Installments
- Part II: Annualized Self-employment tax
You’ll find Schedule AI at the end of Form 2210 and detailed instructions for completing Schedule AI on the IRS website.
Box D: Penalty is lower when figured by treating federal income tax withheld as paid on dates it was actually withheld.
You’ll need to complete Part III to calculate your tax penalty.
Box E: Filed or are filing a joint return for current or previous tax years, but not both, AND Line 8 is smaller than Line 5 above.
You’ll need to complete Page 1 of Form 2210, but the IRS does not require you to compute your tax penalty unless Box B, C, or D also apply.
Part III: Penalty Computation
Part III is required for taxpayers who completed Boxes B, C, or D on Page 1. This is where the taxpayer calculates the estimated tax requirements that should have been paid on a quarterly basis.
Part III also contains the penalty calculations that help arrive at the estimated tax penalty for underpayment. There are two sections:
- Section A-Figure Your Underpayment
- Section B-Figure Your Penalty
Let’s go through Part III line by line.
Line 10-Required installments
Under normal circumstances, you’ll multiply Line 9 by 25% to arrive at the required quarterly payments. These will go in each column under Line 10.
If you selected Box C under Part II, and completed Schedule AI, you’ll enter the amounts on Line 27.
You’ll enter the estimated tax payments for each time frame, based on the quarterly payment due date at the top of each column.
For Column A, you’ll input this same number into Line 15 below.
The IRS instructions contain more detailed information to help you complete Line 11. Specifically, you’ll use Table 1 to track the estimated tax payments made throughout the year.
Table 1 is located in the instructions, to help track the following:
- Overpayment from previous year tax return carried forward. This usually is treated as being part of the first quarterly payment.
- Estimated tax payments made for the year, plus any federal income taxes or excess Social Security taxes withheld
- Payments made when filing tax return. You’ll use the date you filed your tax return, or April 15, whichever is earlier.
If Line 11 is equal to, or greater than Line 10 for all 4 columns, you may stop here. You do not owe an underpayment penalty.
Line 12-Overpayment from previous quarter applied to current quarter
Except for Column A, Line 12 contains the information carried forward from Line 18 of the previous column.
Except for Column A, add Lines 11 and 12. Input the sum in Line 13.
Except for Column A, add Lines 16 and 17 in the previous column. Input the sum in Line 14.
Except for Column A, subtract Line 14 from Line 13. For Column A, bring down the number from Line 11. If the number is zero or a negative number, enter 0.
Except for Column A, if Line 15 is zero, subtract Line 13 from Line 14. Otherwise, enter zero.
If Line 10 is equal to or more than Line 15, subtract Line 15 from Line 10. Then go to Line 12 of the next column. Otherwise, go to Line 18.
If Line 15 is more than Line 10, subtract Line 10 from Line 15. Then go to Line 12 of the next column.
To review, you’re only completing Lines 12-18 because there was at least 1 quarter in which you did not make sufficient tax payments to cover that quarter’s tax liability. If you did pay the required amount in each quarter, double-check the worksheet before proceeding to Section B.
Section B contains the required worksheet and charts to calculate your tax penalty. This is covered in detail on the IRS instructions page.
Once the required worksheet has been completed, that number will go into Line 19. This will be the same number that goes into Line 38 of your Form 1040, Form 1040-SR, or Form 1040-NR. If filing Form 1041, this number will go to Line 27.
Case study example of filing IRS Form 2210
Jane Smith cashed out a significant amount of her stock options during the tax year. This caused her taxable income to be much higher than the previous tax year.
Even though she appears to have an underpayment penalty, that penalty actually disappears when she uses Schedule AI-Annual Income Installment Method.
In this situation, Jane would select Box C under Section II and complete the rest of Form 2210, including Schedule AI. She would attache Form 2210 and Schedule AI to Form 1040 of her tax return.
Case study example of NOT filing IRS Form 2210
Using the above example, let’s imagine that Jane paid estimated taxes when she cashed out her stock options. Working with her tax professional, Jane estimated how much tax she would owe for cashing out her stock options.
Since Jane qualifies as a high-income earner, she submitted enough taxes to pay over 110% of last year’s tax bill.
Because Line 9, Required Annual Payment, was larger than either 90% of her current tax bill or 110% of the previous year tax liability, Jane is not subject to a penalty. As a result, Jane does not have to file IRS Form 2210.
IRS Form 2210-Frequently asked questions
What is an underpayment penalty?
In general, you may owe the penalty for the tax year if the total of your tax withholding and timely estimated tax payments didn’t equal at least the lesser of:
- 90% of your current year’s tax, or
- 100% of your previous year’s tax. Your current year tax return must cover a 12-month period.
High income earners (adjusted gross income above $150,000) must calculate 110% of your previous year’s tax bill. If the taxpayer’s filing status is married, but filing separately, this number is $75,000.
Fishermen and farmers fall under a special rule that requires them to pay 2/3 of their current year’s tax instead of 90%.
What is a substantial underpayment penalty?
If there is an accuracy-related penalty, you may be susceptible to a substantial underpayment penalty. The substantial underpayment penalty applies if you underpay your taxes by the higher of 10% of the amount you should have paid, or $5,000.
This penalty is 20% of the unpaid or underpaid taxes.
How can I get an underpayment penalty waived?
According to IRS Topic 306, the Internal Revenue Code allows the IRS to waive an underpayment penalty under the following conditions:
- You didn’t make a required payment because of a casualty event, disaster, or other unusual circumstance and it would be inequitable to impose the penalty, or
- You retired (after reaching age 62) or became disabled during the tax year or in the preceding tax year for which you should have made estimated payments, and the underpayment was due to reasonable cause and not willful neglect.
How do I know if I have an underpayment penalty?
You will complete IRS Form 2210 to determine whether you have an underpayment penalty. If you’ve paid at least 90% of the current year’s tax or 100% of the previous year’s tax bill (110% for high-income earners), you generally will not have an underpayment penalty.
Where do I file IRS Form 2210?
IRS Form 2210 is filed with your income tax return for the year. Individuals will file IRS Form 2210 with Form 1040. Estates and domestic trust fiduciaries will file Form 2210 along with IRS Form 1041.
Where can I find a copy of IRS Form 2210?
You may download a copy of the IRS Form 2210 from the IRS website.