Table of Contents
 Introduction
 Topics  This chapter discusses:
 Useful Items  You may want to see:
 General Rule
 Exceptions
 Figuring Your Required Annual Payment (Part I)
 Short Method for Figuring the Penalty (Part III)
 Regular Method for Figuring the Penalty (Part IV)
 Annualized Income Installment Method (Schedule AI)
 Farmers and Fishermen
 Waiver of Penalty
If you did not pay enough tax, either through withholding or by making timely estimated tax payments, you will have underpaid your estimated tax and may have to pay a penalty.
You may understand this chapter better if you can refer to a copy of your latest federal income tax return.
The total of your withholding and timely estimated tax payments was at least as much as your 2014 tax. (See Special rules for certain individuals for higher income taxpayers and farmers and fishermen.)

The tax balance due on your 2015 return is no more than 10% of your total 2015 tax, and you paid all required estimated tax payments on time.

Your total tax for 2015 minus your withholding is less than $1,000.

You did not have a tax liability for 2014.

You did not have any withholding taxes and your current year tax (less any household employment taxes) is less than $1,000.

You are requesting a waiver of part, but not all, of the penalty.

You are using the annualized income installment method to figure the penalty.

You are treating the federal income tax withheld from your income as paid on the dates actually withheld.

The general rule for the underpayment penalty,

Special rules for certain individuals,

Exceptions to the underpayment penalty,

How to figure your underpayment and the amount of your penalty on Form 2210, and

How to ask the IRS to waive the penalty.
Form (and Instructions)

2210 Underpayment of Estimated Tax by Individuals, Estates, and Trusts

2210F Underpayment of Estimated Tax by Farmers and Fishermen
See chapter 5 for information about getting these forms.
In general, you may owe a penalty for 2015 if the total of your withholding and timely estimated tax payments did not equal at least the smaller of:

90% of your 2015 tax, or

100% of your 2014 tax. (Your 2014 tax return must cover a 12month period.)
Your 2015 tax, for this purpose, is defined under Total tax for 2015 .
66^{2}/_{3}% for 90% in (1) above. See Farmers and Fishermen .
Example.
You did not make estimated tax payments for 2015 because you thought you had enough tax withheld from your wages. Early in January 2016, you made an estimate of your total 2015 tax. Then you realized that your withholding was $2,000 less than the amount needed to avoid a penalty for underpayment of estimated tax.
On January 10, you made an estimated tax payment of $3,000, which is the difference between your withholding and your estimate of your total tax. Your final return shows your total tax to be $50 less than your estimate, so you are due a refund.
You do not owe a penalty for your payment due January 15, 2016. However, you may owe a penalty through January 10, 2016, the day you made the $3,000 payment, for your underpayments for the earlier payment periods.

22.5% of your 2015 tax, or

25% of your 2014 tax. (Your 2014 tax return must cover a 12month period.)
The tax you would have paid had you filed a separate return  
The total tax you and your spouse would have paid had you filed separate returns 
Example.
Lisa and Paul filed a joint return for 2014 showing taxable income of $49,000 and a tax of $6,446. Of the $49,000 taxable income, $41,000 was Lisa's and the rest was Paul's. For 2015, they file married filing separately. Lisa figures her share of the tax on the 2014 joint return as follows.
2014 tax on $41,000 based on a separate return  $ 6,113 
2014 tax on $8,000 based on a separate return 
803 
Total  $ 6,916 
Lisa's percentage of total tax ($6,113 ÷ $6,916) 
88.39% 
Lisa's part of tax on joint return ($6,446 × 88.39% (0.8839)) 
$ 5,698 

You request a waiver. See Waiver of Penalty .

You use the annualized income installment method. See the explanation of this method under Annualized Income Installment Method (Schedule AI) .

You use your actual withholding for each payment period for estimated tax purposes. See Actual withholding method under Figuring Your Underpayment (Part IV, Section A).

You base any of your required installments on the tax shown on your 2014 return and you filed or are filing a joint return for either 2014 or 2015, but not for both years.
Generally, you do not have to pay an underpayment penalty if either:

Your total tax is less than $1,000, or

You had no tax liability last year.
You do not owe a penalty if the total tax shown on your return minus the amount you paid through withholding (including excess social security and tier 1 railroad retirement (RRTA) tax withholding) is less than $1,000.

Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 (line 58).

Any tax included on line 59 for excess contributions to an IRA, Archer MSA, Coverdell education savings account, health savings account, and ABLE account or any tax on excess accumulations in qualified retirement plans.

The following writeins on line 62:

Uncollected social security and Medicare tax or RRTA tax on tips or groupterm life insurance,

Tax on excess golden parachute payments,

Excise tax on insider stock compensation from an expatriated corporation,

Lookback interest due under section 167(g),

Lookback interest due under section 460(b), and

Recapture of federal mortgage subsidy.

Additional tax on advance payments of health coverage tax credit when not eligible.


Any shared responsibility payment on line 61.

Any refundable credit amounts listed on lines 66a, 67, 68, 69, 72, and any credit from Form 8885 included on line 73.
You do not owe a penalty if you had no tax liability last year and you were a U.S. citizen or resident for the whole year. For this rule to apply, your tax year must have included all 12 months of the year.
You had no tax liability for 2014 if your total tax was zero or you were not required to file an income tax return.
Example.
Ray, who is single and 22 years old, was unemployed for a few months during 2014. He earned $6,700 in wages before he was laid off, and he received $1,400 in unemployment compensation afterwards. He had no other income. Even though he had gross income of $8,100, he did not have to pay income tax because his gross income was less than the filing requirement for a single person under age 65 ($10,150 for 2014). He filed a return only to have his withheld income tax refunded to him.
In 2015, Ray began regular work as an independent contractor. Ray made no estimated tax payments in 2015. Even though he did owe tax at the end of the year, Ray does not owe the underpayment penalty for 2015 because he had no tax liability in 2014.

Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 (line 58).

Any tax included on line 59 for excess contributions to IRAs, Archer MSAs, Coverdell education savings accounts, and health savings accounts, or any tax on excess accumulations in qualified retirement plans.

The following writeins on line 62:

Uncollected social security and Medicare tax or RRTA tax on tips or groupterm life insurance,

Tax on excess golden parachute payments,

Excise tax on insider stock compensation from an expatriated corporation,

Lookback interest due under section 167(g),

Lookback interest due under section 460(b),

Recapture of federal mortgage subsidy, and

Additional tax on advance payments of health coverage tax credit when not eligible.


Any refundable credit amounts listed on lines 66a, 67, 68, 69, and 72.
Figure your required annual payment in Part I of Form 2210, following the linebyline instructions. If you rounded the entries on your tax return to whole dollars, you can round on Form 2210.
Example.
The tax on Lori Lane's 2014 return was $12,400. Her AGI was not more than $150,000 for either 2014 or 2015. The tax on her 2015 return (Form 1040, line 56) is $13,044. Line 57 (selfemployment tax) is $8,902. Her 2015 total tax is $21,946.
For 2015, Lori had $1,600 income tax withheld and made four equal estimated tax payments ($1,000 each). 90% of her 2015 tax is $19,751. Because she paid less than her 2014 tax ($12,400) and less than 90% of her 2015 tax ($19,751), and does not meet an exception, Lori knows that she owes a penalty for underpayment of estimated tax. The IRS will figure the penalty for Lori, but she decides to figure it herself on Form 2210 and pay it with her taxes when she files her tax return.
Lori's required annual payment is $12,400 (100% of 2014 tax) because that is smaller than 90% of her 2015 tax.
You may be able to use the short method in Part III of Form 2210 to figure your penalty for underpayment of estimated tax. If you qualify to use this method, it will result in the same penalty amount as the regular method. However, either the annualized income installment method or the actual withholding method, explained later, may result in a smaller penalty.
You can use the short method only if you meet one of the following requirements.

You made no estimated tax payments for 2015 (it does not matter whether you had income tax withholding).

You paid the same amount of estimated tax on each of the four payment due dates.
If you do not meet either requirement, figure your penalty using the regular method in Part IV of Form 2210 and the Penalty Worksheet in the instructions.
Note.
If any payment was made before the due date, you can use the short method, but the penalty may be less if you use the regular method. However, if the payment was only a few days early, the difference is likely to be small.
You cannot use the short method if any of the following apply.

You made any estimated tax payments late.

You checked box C or D in Part II of Form 2210.

You are filing Form 1040NR or 1040NREZ and you did not receive wages as an employee subject to U.S. income tax withholding.
If you use the short method, you cannot use the annualized income installment method to figure your underpayment for each payment period. Also, you cannot use your actual withholding during each period to figure your payments for each period. These methods, which may give you a smaller penalty amount, are explained under Figuring Your Underpayment (Part IV, Section A).
Complete Part III of Form 2210 following the linebyline instructions in the Instructions for Form 2210.
You can use the regular method in Part IV of Form 2210 to figure your penalty for underpayment of estimated tax if you paid one or more estimated tax payments earlier than the due date.
You must use the regular method in Part IV of Form 2210 to figure your penalty for underpayment of estimated tax if any of the following apply to you.

You paid one or more estimated tax payments on a date after the due date.

You paid at least one, but less than four, installments of estimated tax.

You paid estimated tax payments in un
equal amounts. 
You use the annualized income installment method to figure your underpayment for each payment period.

You use your actual withholding during each payment period to figure your payments.
Under the regular method, figure your underpayment for each payment period in Section A, then figure your penalty using the Penalty Worksheet in the Instructions for Form 2210. Enter the results on line 27 of Section B.
Figure your underpayment of estimated tax for each payment period in Section A following the linebyline instructions in the Instructions for Form 2210. Complete lines 20 through 26 of the first column before going to line 20 of the next column.

Your estimated tax paid after the due date for the previous column and by the due date shown at the top of the column, and

Onefourth of your withholding.
Figure the amount of your penalty for Section B using the Penalty Worksheet in the Instructions for Form 2210. The penalty is imposed on each underpayment amount shown on Form 2210, Section A, line 25, for the number of days that it remained unpaid.
For 2015, a 3% rate applies for the following periods — April 16 through June 30, July 1 through September 30, October 1 through December 31, and January 1, 2016 through April 15, 2016.

Find the number for the date the payment was due by going across to the column of the month the payment was due and moving down the column to the due date.

In the same manner, find the number for the date the payment was made.

Subtract the due date “number” from the payment date “number.”
Instructions. Use this table with Form 2210 if you are completing Part IV, Section B. First, find the number for the payment due date by going across to the column of the month the payment was due and moving down the column to the due date. Then, in the same manner, find the number for the date the payment was made. Finally, subtract the due date number from the payment date number. The result is the number of days the payment is late.
Example. The payment due date is June 15 (61). The payment was made on November 4 (203). The payment is 142 days late (203 – 61).

Tax Year 2015  
Day of  2015  2015  2015  2015  2015  2015  2015  2015  2015  2016  2016  2016  2016 
Month  April  May  June  July  Aug.  Sept.  Oct.  Nov.  Dec.  Jan.  Feb.  Mar.  Apr. 
1  16  47  77  108  139  169  200  230  261  292  321  352  
2  17  48  78  109  140  170  201  231  262  293  322  353  
3  18  49  79  110  141  171  202  232  263  294  323  354  
4  19  50  80  111  142  172  203  233  264  295  324  355  
5  20  51  81  112  143  173  204  234  265  296  325  356  
6  21  52  82  113  144  174  205  235  266  297  326  357  
7  22  53  83  114  145  175  206  236  267  298  327  358  
8  23  54  84  115  146  176  207  237  268  299  328  359  
9  24  55  85  116  147  177  208  238  269  300  329  360  
10  25  56  86  117  148  178  209  239  270  301  330  361  
11  26  57  87  118  149  179  210  240  271  302  331  362  
12  27  58  88  119  150  180  211  241  272  303  332  363  
13  28  59  89  120  151  181  212  242  273  304  333  364  
14  29  60  90  121  152  182  213  243  274  305  334  365  
15  0  30  61  91  122  153  183  214  244  275  306  335  366 
16  1  31  62  92  123  154  184  215  245  276  307  336  
17  2  32  63  93  124  155  185  216  246  277  308  337  
18  3  33  64  94  125  156  186  217  247  278  309  338  
19  4  34  65  95  126  157  187  218  248  279  310  339  
20  5  35  66  96  127  158  188  219  249  280  311  340  
21  6  36  67  97  128  159  189  220  250  281  312  341  
22  7  37  68  98  129  160  190  221  251  282  313  342  
23  8  38  69  99  130  161  191  222  252  283  314  343  
24  9  39  70  100  131  162  192  223  253  284  315  344  
25  10  40  71  101  132  163  193  224  254  285  316  345  
26  11  41  72  102  133  164  194  225  255  286  317  346  
27  12  42  73  103  134  165  195  226  256  287  318  347  
28  13  43  74  104  135  166  196  227  257  288  319  348  
29  14  44  75  105  136  167  197  228  258  289  320  349  
30  15  45  76  106  137  168  198  229  259  290  350  
31  46  107  138  199  260  291  351 
If you did not receive your income evenly throughout the year (for example, your income from a shop you operated at a marina was much larger in the summer than it was during the rest of the year), you may be able to lower or eliminate your penalty by figuring your underpayment using the annualized income installment method. Under this method, your required installment (Part IV, line 18) for one or more payment periods may be less than onefourth of your required annual payment.
To figure your underpayment using this method, complete Form 2210, Schedule AI. Schedule AI annualizes your tax at the end of each payment period based on your income, deductions, and other items relating to events that occurred from the beginning of the tax year through the end of the period.
If you use the annualized income installment method, you must check box C in Part II of Form 2210. Also, you must attach Form 2210 and Schedule AI to your return.
If you use Schedule AI for any payment due date, you must use it for all payment due dates.If you are a farmer or fisherman, the following special rules for underpayment of estimated tax apply to you.

The penalty for underpaying your 2015 estimated tax will not apply if you file your return and pay all the tax due by March 1, 2016. If you are a fiscal year taxpayer, the penalty will not apply if you file your return and pay the tax due by the first day of the third month after the end of your tax year.

Any penalty you owe for underpaying your 2015 estimated tax will be figured from one payment due date, January 15, 2016.

The underpayment penalty for 2015 is figured on the difference between the amount of 2015 withholding plus estimated tax paid by the due date and the smaller of:

66^{2}/_{3}% (rather than 90%) of your 2015 tax, or

100% of the tax shown on your 2014 return.

Even if these special rules apply to you, you will not owe the penalty if you meet either of the two conditions discussed under Exceptions .
See Who Must Pay Estimated Tax in chapter 2 for the definition of a farmer or fisherman who is eligible for these special rules.
The IRS can waive the penalty for underpayment if either of the following applies.

You did not make a payment because of a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty.

You retired (after reaching age 62) or became disabled in 2014 or 2015 and both the following requirements are met.

You had a reasonable cause for not making the payment.

Your underpayment was not due to willful neglect.

Note.  To figure the annualized entries for lines 2, 3, and 5 below, multiply the expected amount for the period by the annualization amount on line 2 of Schedule AI for the same period. 

1.  Enter line 11 of your Schedule AI, or line 3 from Worksheet 42  1.  
2.  Enter your annualized qualified dividends for the period  2.  
3.  Are you filing Schedule D?  
□ Yes. Enter the smaller of your annualized amount from line 15 or line 16 of Schedule D. If either line 15 or line 16 is blank or a loss, enter 0.  3.  
□ No. Enter your annualized capital gain distributions from Form 1040, line 13  
4.  Add lines 2 and 3  4.  
5.  If you are claiming investment interest expense on Form 4952, enter your annualized amount from line 4g of that form. Otherwise, enter 0  5.  
6.  Subtract line 5 from line 4. If zero or less, enter 0  6.  
7.  Subtract line 6 from line 1. If zero or less, enter 0  7.  
8.  Enter: $37,450 if single or married filing separately, $74,900 if married filing jointly or qualifying widow(er), $50,200 if head of household. 
8.  
9.  Enter the smaller of line 1 or line 8  9.  
10.  Enter the smaller of line 7 or line 9  10.  
11.  Subtract line 10 from line 9. This amount is taxed at 0%  11.  
12.  Enter the smaller of line 1 or line 6  12.  
13.  Enter the amount from line 11  13.  
14.  Subtract line 13 from line 12  14.  
15.  Multiply line 14 by 15% (0.15)  15.  
16.  Figure the tax on the amount on line 7. If the amount on line 7 is less than $100,000, use the Tax Table in the 2015 Instructions for Form 1040 to figure this tax. If the amount on line 7 is $100,000 or more, use the Tax Computation Worksheet in the 2015 Instructions for Form 1040  16.  
17.  Add lines 15 and 16  17.  
18.  Figure the tax on the amount on line 1. If the amount on line 1 is less than $100,000, use the Tax Table in the 2015 Instructions for Form 1040 to figure this tax. If the amount on line 1 is $100,000 or more, use the Tax Computation Worksheet in the 2015 Instructions for Form 1040  18.  
19.  Tax on all taxable income. Enter the smaller of line 17 or line 18. Also enter this amount on line 12 of Schedule AI in the appropriate column. However, if you are using this worksheet to figure the tax on the amount on line 3 of Worksheet 42, enter the amount from line 19 on Worksheet 42, line 4  19. 
Before you begin:If Schedule AI, line 11, is zero for the period, do not complete this worksheet.  
1.  Enter the amount from line 11 of Schedule AI for the period  1.  
2.  Enter the annualized amount* of foreign earned income and housing amount excluded or deducted (from Form 2555, lines 45 and 50, or Form 2555EZ, line 18) in figuring the amount entered for the period on line 1 of Schedule AI 
2.  
3.  Add lines 1 and 2  3.  
4.  Tax on the amount on line 3. Use the Tax Table, Tax Computation Worksheet, Form 8615**, Qualified Dividends and Capital Gain Tax Worksheet***, or Schedule D Tax Worksheet***, whichever applies. See the 2015 instructions for Form 1040, line 44, to find out which tax computation method to use. (Note. You do not have to use the same method for each period on Schedule AI.)  4.  
5.  Tax on the amount on line 2. If the amount on line 2 is less than $100,000, use the Tax Table in the 2015 Instructions for Form 1040 to figure this tax. If the amount on line 7 is $100,000 or more, use the Tax Computation Worksheet in the 2015 Instructions for Form 1040  5.  
6.  Subtract line 5 from line 4. Enter the result here and on line 12 of Schedule AI. If zero or less, enter 0 
6.  
* To figure the annualized amount for line 2, multiply the exclusion or deduction for the period by the annualization amount on line 2 of Schedule AI for the same period.  
** If you use Form 8615 to figure the tax on line 4 above, enter the amount from line 3 above on line 4 of Form 8615. If the child's parent files Form 2555 or 2555EZ, enter the amounts from lines 3 and 4 of the parent's Foreign Earned Income Tax Worksheet on lines 6 and 10, respectively, of Form 8615. Complete the rest of Form 8615 according to its instructions. Then complete lines 5 and 6 above.  
*** Enter the amount from line 3 above on line 1 of the Qualified Dividends and Capital Gain Tax Worksheet (or Worksheet 41 in this chapter) or the Schedule D Tax Worksheet, whichever worksheet you use to figure the tax on line 4 above. Complete that worksheet through line 6 (line 10 if you use the Schedule D Tax Worksheet). Next, determine if you have a capital gain excess.  
Figuring capital gain excess. To find out if you have a capital gain excess for the appropriate period, subtract line 11 of Schedule AI from line 6 of Worksheet 41 or your Qualified Dividends and Capital Gain Tax Worksheet (line 10 of your Schedule D Tax Worksheet). If the result is more than zero, that amount is your capital gain excess.  
No capital gain excess. If you do not have a capital gain excess, complete the rest of Worksheet 41, Qualified Dividends and Capital Gain Tax Worksheet, or the Schedule D Tax Worksheet according to the worksheet's instructions. Then complete lines 5 and 6 above.  
Capital gain excess. If you have a capital gain excess, complete a second Worksheet 41, Qualified Dividends and Capital Gain Tax Worksheet, or Schedule D Tax Worksheet (whichever applies) as instructed above but in its entirety and with the following additional modifications. Then complete lines 5 and 6 above.  
Make the modifications below only for purposes of filling out Worksheet 42 above.  
a. Reduce (but not below zero) the amount you otherwise would enter on line 3 of your Worksheet 41, line 3 of your Qualified Dividends and Capital Gain Tax Worksheet, or line 9 of your Schedule D Tax Worksheet by your capital gain excess.  
b. Reduce (but not below zero) the amount you otherwise would enter on line 2 of your Worksheet 41, line 2 of your Qualified Dividends and Capital Gain Tax Worksheet, or line 6 of your Schedule D Tax Worksheet by any of your capital gain excess not used in (a) above.  
c. Reduce (but not below zero) the amount on your Schedule D (Form 1040), line 18, by your capital gain excess.  
d. Include your capital gain excess as a loss on line 16 of your Unrecaptured Section 1250 Gain Worksheet in the 2015 Instructions for Schedule D (Form 1040). 
More Online Publications 