Form 2210: Underpayment of Estimated Tax by Individuals, Estates, and Trusts (2021)

What Form 2210 Is For

Form 2210 is the IRS document used to determine whether you owe a penalty for not paying enough estimated tax throughout the year—and if so, how much that penalty will be. The U.S. tax system operates on a "pay-as-you-go" basis, meaning you're expected to pay taxes as you earn income during the year, not just when you file your annual return. This payment happens through either withholding from your paycheck or pension, or through quarterly estimated tax payments.

When you underpay your estimated taxes, the IRS may assess a penalty calculated based on how much you underpaid, for how long, and at what interest rate. Form 2210 helps calculate this penalty precisely for individuals, estates, and trusts. The good news: in many cases, you don't actually need to file this form—the IRS will calculate any penalty for you and send you a bill. However, certain situations require you to complete Form 2210 yourself, particularly when requesting a penalty waiver or using special calculation methods.

When You’d Use Form 2210 (Including Late or Amended Situations)

Standard Filing Timeline: Form 2210 relates to your annual tax return (Form 1040, 1040-SR, 1040-NR, or 1041). For the 2021 tax year, the form would typically be filed with your 2021 return by April 15, 2022 (or by your extended deadline if you requested an extension).

When You Must File Form 2210: You're required to file Form 2210 and calculate the penalty yourself only if you check Box B, C, or D in Part II of the form. These boxes indicate:

• Box B: You're requesting a waiver of the penalty due to retirement after age 62, disability, casualty, disaster, or other unusual circumstances
• Box C: You're using the annualized income installment method because your income varied significantly during the year
• Box D: You're treating your federal income tax withholding as paid on the dates it was actually withheld, rather than in equal amounts throughout the year

When the IRS Calculates for You: If none of these special circumstances apply, you simply leave the estimated tax penalty line blank on your tax return. The IRS will figure any penalty owed and mail you a bill. If you file by April 15, 2022, no interest will be charged on the penalty if you pay by the date shown on the bill.

Amended Returns: If you file an amended return by the due date of your original return, use the amounts from the amended return to calculate your underpayment. If you amend after the due date, use the original return amounts. A "superseding return" (a second return filed by the original due date) replaces the first return entirely for penalty calculation purposes.

Late Filing Considerations: Even if you file your return late, Form 2210 calculations still apply to determine underpayment penalties for the quarterly payment periods during 2021. The penalty is calculated separately for each of the four quarterly installment due dates (April 15, June 15, September 15, 2021, and January 18, 2022).

Key Rules for 2021

The 90%/100% Rule: You generally won't owe an underpayment penalty if your total withholding and timely estimated tax payments equal at least the smaller of:

• 90% of your 2021 tax, OR
• 100% of your 2020 tax (your 2020 return must cover a full 12 months)

Higher Income Exception: If your adjusted gross income (AGI) on your 2020 return exceeded $150,000 ($75,000 if married filing separately), you need to substitute 110% for the 100% threshold above.

The $1,000 Safe Harbor: You won't owe a penalty if the total tax shown on your 2021 return minus your withholding is less than $1,000.

No Prior-Year Tax Liability Exception: You won't owe the penalty if you had no tax liability for 2020, were a U.S. citizen or resident alien for all of 2020, and your 2020 return covered a full 12 months.

Quarterly Payment Schedule: Estimated tax is typically due in four installments:

• April 15, 2021 (for income earned January 1–March 31)
• June 15, 2021 (for income earned April 1–May 31)
• September 15, 2021 (for income earned June 1–August 31)
• January 18, 2022 (for income earned September 1–December 31, 2021)

Special Rules for Farmers and Fishermen: If at least two-thirds of your gross income for 2020 or 2021 came from farming or fishing, different rules apply. You can avoid the penalty entirely by filing your return and paying all tax due by March 1, 2022. Otherwise, use Form 2210-F instead of Form 2210, and substitute 66⅔% for the 90% threshold.

2021-Specific Adjustments: For 2021 Form 2210 calculations, you may need to use amounts adjusted by the IRS's Exclusion of Unemployment Compensation Recovery Effort (EUCRE) if you received unemployment benefits in 2020. The American Rescue Plan Act allowed taxpayers to exclude up to $10,200 of unemployment compensation for 2020, and the IRS automatically adjusted many returns. Use these adjusted figures when calculating your 2020 tax on line 8 of Form 2210.

Section 965 Tax Exclusion: Filers of Form 1040, 1040-SR, or 1041 may exclude their net tax liability under section 965 (related to the transition tax on certain foreign earnings) when calculating required annual payments.

Step-by-Step (High Level)

Step 1: Determine If You Need to File

Use the flowchart at the top of Form 2210, page 1. Check if you meet any exceptions (no 2020 tax liability, less than $1,000 owed after withholding, or met the 90%/100% rule). If you're exempt, stop—you don't need the form. If you're subject to a penalty but don't need a waiver or special calculation method, you can let the IRS calculate it for you.

Step 2: Complete Part I — Required Annual Payment (Lines 1–9)

• Line 1: Enter your total tax from your 2021 return
• Line 2: Add certain additional taxes (self-employment tax, household employment taxes, alternative minimum tax, etc.)
• Line 3: Subtract refundable credits (earned income credit, additional child tax credit, recovery rebate credit, etc.)
• Lines 4–7: Calculate your required payment thresholds
• Line 8: Figure your 2020 tax (with adjustments for filing status changes, EUCRE, higher income thresholds)
• Line 9: Determine your required annual payment (the smaller of the 90%/100% calculations)

Step 3: Complete Part II — Reasons for Filing

Check any applicable boxes (A through E) to indicate why you're filing Form 2210. Most critical are boxes B, C, and D, which require you to complete the form yourself rather than having the IRS calculate your penalty.

Step 4: Complete Part III, Section A — Figure Your Underpayment

• Line 10: Enter your required installment for each quarterly period (typically one-fourth of line 9, unless using the annualized income method)
• Line 11: List all estimated tax payments and withholding for each period using Table 1
• Lines 12–17: Calculate any underpayment for each of the four payment periods

Step 5: Complete Schedule AI (If Applicable)

If your income varied significantly during the year, complete Schedule AI—Annualized Income Installment Method. This schedule lets you calculate required installments based on income received during each period rather than assuming even income throughout the year. This method often reduces or eliminates penalties for taxpayers with irregular income patterns (such as business owners, commission-based workers, or those with large year-end bonuses).

Step 6: Complete Part III, Section B — Calculate the Penalty

Use the separate penalty worksheet provided in the instructions. For each underpayment in each period, calculate:

• The number of days the underpayment remained unpaid
• Apply the IRS underpayment interest rate (3% for all 2021 periods)
• Calculate the penalty amount: (Underpayment × Days Late ÷ 365) × 0.03

Step 7: Report and Pay

Enter the total penalty from line 19 on the "Estimated tax penalty" line of your tax return. Attach Form 2210 to your return if you checked boxes B, C, D, or E in Part II.

Common Mistakes and How to Avoid Them

Mistake #1: Not Checking the Correct Box in Part II
The Problem: Taxpayers often fail to check boxes B, C, or D when they should, or they check these boxes unnecessarily. This determines whether you must file Form 2210 or can let the IRS calculate the penalty.
How to Avoid It: Carefully read the box descriptions. Check Box C if you're using Schedule AI (annualized income method). Check Box D if you want withholding treated as paid when actually withheld rather than evenly. Check Box B only if requesting a specific waiver with documentation.

Mistake #2: Using Incorrect Prior-Year Tax Figures
The Problem: Many taxpayers use the wrong 2020 tax amount, especially when filing status changed between years or after the EUCRE unemployment compensation adjustments.
How to Avoid It: For line 8, don't just copy line 24 from your 2020 Form 1040. Follow the detailed instructions to add specific taxes and subtract refundable credits. If married filing jointly in 2021 but not in 2020, add both spouses' separate 2020 taxes. If filing separately in 2021 after filing jointly in 2020, calculate your proportional share. Check if EUCRE adjustments affect your 2020 figures.

Mistake #3: Misapplying Estimated Tax Payments
The Problem: Taxpayers think they can designate payments for specific quarters, but IRS rules automatically apply payments to earlier underpayments first.
How to Avoid It: Understand that if you had a $500 underpayment from the April installment and made a $1,200 payment in June, $500 automatically goes to cover the April underpayment first—even if you intended the full amount for the June installment. Track cumulative underpayments, not just quarterly targets.

Mistake #4: Incorrect Treatment of Withholding
The Problem: Federal income tax withholding and excess Social Security tax are normally treated as paid equally throughout the year (one-fourth each quarter), but some taxpayers incorrectly allocate these amounts or forget to include them.
How to Avoid It: Unless you check Box D and can prove when withholding actually occurred, treat withholding as paid evenly: divide your total withholding by four and enter one-fourth in each column of line 11. Include amounts from Form 1040 line 25d and Schedule 3 line 11.

Mistake #5: Forgetting Special Credits and Taxes
The Problem: Missing household employment taxes, omitting refundable credits, or including non-refundable credits where only refundable ones should appear.
How to Avoid It: On line 2, include self-employment tax, Additional Medicare Tax, Net Investment Income Tax, and other Schedule 2 items—but exclude certain write-ins listed in the instructions (like "UT" for uncollected taxes or "FMSR" for mortgage subsidy recapture). On line 3, include only refundable credits like earned income credit, additional child tax credit, and premium tax credit—not regular child tax credit or other non-refundable credits.

Mistake #6: Not Using Schedule AI When Income Is Uneven
The Problem: Taxpayers with highly variable income (seasonal workers, business owners, investors with lumpy capital gains) pay penalties based on the assumption they earned income evenly, when they actually could have owed much less in early quarters.
How to Avoid It: If your income fluctuated significantly during 2021, complete Schedule AI to annualize your income for each period. This method is more complex but can substantially reduce or eliminate penalties. Check Box C in Part II when using this method.

Mistake #7: Missing Waiver Documentation
The Problem: Requesting a penalty waiver by checking Box A or B without attaching required documentation, or not explaining circumstances in sufficient detail.
How to Avoid It: When requesting a waiver, attach a signed statement under penalty of perjury explaining the circumstances. For retirement/disability waivers, include documentation showing your retirement date and age, or the date you became disabled. For casualty/disaster waivers, attach police reports, insurance company reports, or other evidence. For federally declared disasters, don't file Form 2210—the IRS applies automatic relief based on your address.

What Happens After You File

Processing Timeline: When you attach Form 2210 to your tax return, the IRS processes it along with your return. If you calculated the penalty yourself (boxes B, C, or D checked), the IRS will review your calculations for accuracy.

If You Let the IRS Calculate: If you didn't file Form 2210, you'll receive a notice (typically a CP14 or similar) showing the underpayment penalty calculation. This usually arrives several weeks to months after your return is processed. The notice will show the penalty amount, how it was calculated, and your payment options.

Payment Due: Penalties calculated on Form 2210 are due when your return is due. If you filed by April 15, 2022, and let the IRS calculate the penalty, you won't be charged interest on the penalty itself if you pay by the date shown on the IRS bill. However, if you calculated the penalty yourself and included it on your return, interest begins accruing if not paid by the return due date.

Interest on Penalties: The IRS charges interest on underpayment penalties that remain unpaid. Interest rates are adjusted quarterly and compound daily.

Waiver Review: If you requested a penalty waiver (Box A or B checked), the IRS reviews your documentation and circumstances. They'll send a notice indicating whether your waiver request was approved, partially approved, or denied. This review can take several months. Approval criteria include:

• Retirement after age 62 or disability, with reasonable cause
• Casualty, disaster, or unusual circumstances making the penalty inequitable

The waiver review is discretionary—approval isn't guaranteed even with documentation.

Federally Declared Disaster Relief: If you lived in or had a business in a federally declared disaster area during 2021, the IRS automatically identifies your location and applies penalty relief without requiring Form 2210. Extended deadlines apply to both filing and payment obligations for affected taxpayers.

Payment Options: You can pay any penalty amount through:

• Your IRS Online Account (view balance, make payments, set up payment plans)
• Direct Pay from your bank account
• Credit/debit card (processing fees apply)
• Check or money order mailed with your payment voucher
• Installment agreement if you can't pay in full

Amended Form 2210: If you discover errors in your Form 2210 calculation after filing, you can file an amended return (Form 1040-X) with a corrected Form 2210. You may receive a refund if you overpaid the penalty or an additional bill if you underpaid.

FAQs

1. Can I avoid the penalty entirely by filing my return early and paying everything I owe by January 31, 2022?

2. What's the difference between estimated tax payments and tax withholding for penalty calculation purposes?

3. If I have a refund coming when I file my return, will I still owe an underpayment penalty?

4. What is the annualized income installment method (Schedule AI) and when should I use it?

5. Can I request a penalty waiver based on reasonable cause like I can with other tax penalties?

6. How does the IRS calculate the penalty interest rate, and does it change during the year?

7. If I'm subject to both regular underpayment penalties and late payment penalties, how do they interact?

Sources: All information in this summary comes directly from official IRS sources:
Form 2210 Instructions (2021), Form 2210 (2021), and IRS Underpayment of Estimated Tax Penalty guidance page.