Form 2210: Underpayment of Estimated Tax by Individuals, Estates, and Trusts (2023)
Understanding Your Tax Payment Requirements
The U.S. tax system operates on a ""pay-as-you-go"" basis, meaning you're expected to pay taxes throughout the year as you earn income—not just when you file your return in April. Form 2210 comes into play when you haven't paid enough tax during the year through withholding or quarterly estimated payments. This guide will help you understand when this form matters, how it works, and what you can do to avoid penalties.
How Form 2210 Is Used
Form 2210 is the IRS form used to determine whether you owe a penalty for underpaying your estimated taxes during the tax year. Think of it as the IRS's calculator for figuring out if you paid your taxes late and how much interest-like penalty you might owe as a result.
The penalty isn't punishment for doing something wrong—it's the government's way of recouping the cost of not having your tax money when it should have received it. Just as you'd pay interest on a late credit card payment, the underpayment penalty compensates the government for the delayed receipt of funds that were technically due throughout the year.
Here's the good news: most taxpayers don't need to file Form 2210 at all. The IRS will automatically calculate any penalty you owe and send you a bill. You only need to complete Form 2210 yourself if you're requesting a waiver, using the annualized income method, or treating your withholding as paid on specific dates rather than evenly throughout the year.
When You’d Use Form 2210 (Including Late or Amended Returns)
Original Returns: You must attach Form 2210 to your original 2023 tax return (fileed in 2024) if you check boxes B, C, or D in Part II of the form. These boxes indicate special circumstances:
- Box B: You're requesting a waiver of the penalty because you retired after age 62, became disabled, or experienced a casualty, disaster, or unusual circumstance
- Box C: Your income varied significantly during the year, and you're using Schedule AI (Annualized Income Installment Method) to calculate a lower penalty
- Box D: You want to treat your withholding as paid on the actual dates it was withheld (rather than evenly throughout the year)
Amended Returns: If you file an amended return by the original due date (including extensions), use the amounts from the amended return to calculate your underpayment. However, if you file an amended return after the due date, stick with the amounts from your original return. One important exception: if you and your spouse file a joint return after the due date to replace previously filed separate returns, use the joint return figures.
Superseding Returns: A second return filed by the original due date is considered a ""superseding"" return and replaces the first return for penalty calculation purposes—the IRS treats it as if the first return never existed.
Key Rules or Details for 2023
Understanding the ""safe harbor"" rules is crucial because they determine whether you owe any penalty at all. You can avoid the underpayment penalty entirely if you meet either of these conditions:
- The $1,000 threshold: The total tax on your 2023 return minus your withholding is less than $1,000, or
- The payment safe harbor: You paid at least the smaller of:
- 90% of your 2023 tax liability, or
- 100% of your 2022 tax liability (your 2022 return must cover a full 12 months)
Special rule for higher earners: If your adjusted gross income (AGI) on your 2022 return exceeded $150,000 ($75,000 if married filing separately in 2023), the second safe harbor increases to 110% of your 2022 tax instead of 100%.
Four quarterly payment deadlines apply for 2023 estimated taxes:
- April 15, 2023 (for income earned January 1–March 31)
- June 15, 2023 (for income earned April 1–May 31)
- September 15, 2023 (for income earned June 1–August 31)
- January 15, 2024 (for income earned September 1–December 31)
The penalty is calculated separately for each installment period, so you could owe a penalty for an early payment even if you overpaid later in the year. However, the annualized income method (Schedule AI) can reduce or eliminate penalties if your income was uneven throughout the year—particularly helpful for those with seasonal businesses, large year-end bonuses, or irregular investment income.
Farmers and Fishermen: If at least two-thirds of your 2022 or 2023 gross income came from farming or fishing, you can avoid the penalty entirely by filing your return and paying all tax due by March 1, 2024. If you miss that deadline, use Form 2210-F instead of Form 2210, and the safe harbor drops to 66.67% of your current year tax.
Automatic exceptions mean you won't owe any penalty if:
- You had no tax liability for 2022, were a U.S. citizen or resident all year, and your 2022 return covered a full 12 months
- You're a decedent's estate or qualifying trust within 2 years of the decedent's death
Step-by-Step (High Level)
Part I — Required Annual Payment (Lines 1–9)
If you must file Form 2210, here's the simplified path:
Part I—Required Annual Payment (Lines 1–9): Calculate what you should have paid. Start with your total 2023 tax (line 1), add any additional taxes that aren't included in regular withholding—like self-employment tax, household employment taxes, or certain investment-related taxes (line 2). Subtract refundable credits like earned income credit and premium tax credit (line 3). Then subtract your withholding (line 6). The result shows your underpayment (line 7). Compare this to your 2022 tax (line 8), and your required annual payment is generally the smaller amount (line 9).
Part II — Reasons for Filing
Part II—Reasons for Filing: Check the applicable boxes (A through E) that explain why you're filing. Remember, you must file if you check B, C, or D.
Part III — Penalty Computation
Part III—Penalty Computation: This has two sections:
- Section A (Lines 10–17): Figures your underpayment for each of the four quarterly periods. Line 10 shows your required installment (usually one-fourth of line 9), line 11 tracks your actual payments for each period, and line 17 shows any underpayment remaining.
- Section B (Lines 18–19): Calculates the actual penalty using a separate penalty worksheet. The penalty is based on quarterly interest rates published by the IRS (7% for April–September 2023, 8% for October 2023–March 2024), the underpayment amount, and the number of days each underpayment remained unpaid.
Schedule AI — Annualized Income Installment Method
Schedule AI—Annualized Income Installment Method: Complete this schedule if your income varied significantly during the year (box C checked). This method recalculates your required payments based on your actual income earned through each quarterly period, potentially reducing or eliminating your penalty. The schedule requires you to figure your tax liability through each period and can be complex, but it's worth the effort if you had lumpy income.
Common Mistakes and How to Avoid Them
Mistake #1: Assuming You Don't Need to File Because You're Getting a Refund
Mistake #1: Assuming you don't need to file because you're getting a refund. The penalty isn't based on whether you owe tax when you file—it's based on whether you underpaid during the year. Even taxpayers receiving refunds can owe underpayment penalties if they didn't pay enough throughout the year.
How to avoid it: Run through the safe harbor tests in Part I, lines 1–9, regardless of your final tax balance.
Mistake #2: Filing Form 2210 When You Don't Need To
Mistake #2: Filing Form 2210 when you don't need to. Most taxpayers should let the IRS calculate the penalty automatically. You're creating extra work for yourself and potentially delaying your refund.
How to avoid it: Only file Form 2210 if you're specifically requesting a waiver, using the annualized income method, or treating withholding as paid on actual dates.
Mistake #3: Not Knowing About the Annualized Income Method
Mistake #3: Not knowing about the annualized income method. Many taxpayers with irregular income (freelancers, commission-based workers, investors with year-end capital gains) pay penalties unnecessarily because they don't know Schedule AI exists.
How to avoid it: If your income varies significantly by quarter, always explore Schedule AI. It requires more calculation but can save hundreds or thousands in penalties.
Mistake #4: Forgetting the 110% Rule for High Earners
Mistake #4: Forgetting the 110% rule for high earners. Taxpayers with AGI over $150,000 in the prior year often mistakenly use the 100% safe harbor and still owe penalties.
How to avoid it: Check your prior-year AGI before calculating your safe harbor. The 110% rule catches many high earners by surprise.
Mistake #5: Applying Payments Incorrectly Across Quarters
Mistake #5: Applying payments incorrectly across quarters. The IRS applies payments to the earliest underpayment first, regardless of which quarter you intended to cover. This affects penalty calculations.
How to avoid it: When completing line 11, understand that payments automatically cover earlier period shortfalls before being applied to the current period. Use Table 1 in the instructions to track payment dates and amounts carefully.
Mistake #6: Not Requesting a Waiver When Eligible
Mistake #6: Not requesting a waiver when eligible. Taxpayers experiencing retirement, disability, casualty, disaster, or unusual circumstances often pay penalties they could have waived.
How to avoid it: If you meet waiver criteria, check box A or B in Part II and attach documentation explaining your circumstances. The IRS will review and potentially waive all or part of your penalty.
Mistake #7: Missing the Higher-Income Threshold for Married Filing Separately
Mistake #7: Missing the higher-income threshold for married filing separately. The $150,000 AGI threshold drops to $75,000 for married filing separately filers—easy to overlook.
How to avoid it: Pay special attention to filing status when determining which safe harbor percentage applies.
What Happens After You File
If you don't file Form 2210: The IRS will calculate any penalty you owe and mail you a bill (Notice CP2000 or similar). If you file your return by April 15, 2024, and pay the penalty by the date shown on the bill, you won't owe interest on the penalty itself. Payment options include online payment through IRS.gov, check, or setting up a payment plan.
If you file Form 2210 with your return: The penalty amount you calculated on line 19 should be entered on the ""Estimated tax penalty"" line of your Form 1040, 1040-SR, or 1041. You'll pay this amount along with any other tax due when you file.
If you requested a waiver: The IRS will review your documentation and circumstances. If approved, the penalty will be reduced or eliminated. You'll receive correspondence explaining their decision. If denied, you'll receive a bill for the penalty with payment instructions.
If you used the annualized income method: The IRS will verify your calculations during return processing. Errors in Schedule AI may result in adjustments and additional penalty assessments, so accuracy is critical.
Interest on penalties: The IRS charges interest on unpaid penalties from the original due date until paid in full. This interest compounds daily at the federal short-term rate plus 3 percentage points.
Payment plans: If you can't pay the penalty in full, you can apply for an installment agreement. While this prevents immediate collection action, interest continues to accrue on the unpaid balance.
Federally declared disaster areas: The IRS automatically identifies taxpayers in covered disaster areas and applies appropriate penalty relief. Don't file Form 2210 if your underpayment was disaster-related—the IRS will apply waivers automatically during processing.
FAQs
Q: Can I avoid estimated taxes by having more withheld from my paycheck?
Q: What if I receive most of my income at the end of the year—am I stuck paying penalties on earlier quarters?
Q: Does the penalty apply if I'm getting a large refund?
Q: Can I pay my entire estimated tax in one payment instead of quarterly?
Q: What's the difference between Form 2210 and Form 2210-F?
Q: If I'm entitled to a waiver, do I still have to calculate the penalty amount?
Q: Will filing Form 2210 delay my refund?
All information is based on official IRS publications for tax year 2023. For the most current forms and instructions, visit IRS.gov/Form2210 and consult the 2023 Instructions for Form 2210.
