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 2009 (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.
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 1040NR-EZ 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 on page 51 under Figuring Your Underpayment (Part IV, Section A)
Complete Part III of Form 2210 following the line-by-line instructions.
First, figure your total underpayment for the year (line 14) by subtracting the total of your withholding and estimated tax payments (line 13) from your required annual payment (line 10). Then figure the penalty you would owe if the underpayment remained unpaid through April 15, 2010. This amount (line 15) is the maximum estimated tax penalty on your underpayment.
Next, figure any part of the maximum penalty you do not owe (line 16) because your underpayment was paid before the due date of your return. For example, if you filed your 2009 return and paid the tax balance on March 31, 2010, you do not owe the penalty for the 15-day period from April 1 through April 15. Therefore, you would figure the amount to enter on line 16 using 15 days.
Finally, subtract from the maximum penalty amount (line 15) any part you do not owe (line 16). The result (line 17) is the penalty you owe. Enter that amount on line 76 of Form 1040 or line 49 of Form 1040A. Attach Form 2210 to your return only if you checked one of the boxes in Part II.taxmap/pubs/p505-023.htm#en_us_publink1000207512
Assume the same facts for Ivy Fields as in the previous example
on this page. Ivy paid her estimated tax payments in four installments of $1,000 each on the dates it was due ($4,000 total).
Ivy qualifies to use the short method to figure her estimated tax penalty. Using the annualized income installment method or actual withholding will not give her a smaller penalty amount because her income and withholding were distributed evenly throughout the year. Therefore, she figures her penalty in Part III of Form 2210 (see Figure 4-A (Continued)
on page 56) and leaves Part IV (not shown) blank.
Ivy figures her $6,800 total underpayment for the year (line 14) by subtracting the total of her withholding and estimated tax payments ($5,600) from her $12,400 required annual payment (line 10). The maximum penalty on her underpayment (line 15) is $181 ($6,800 × .02660).
Ivy plans to file her return and pay her $15,946 tax balance on March 31, 2010, 15 days before April 15. Therefore, she does not owe part of the maximum penalty amount. The part she does not owe (line 16) is figured as follows.
|$6,800 × 15 × .00011 = $11|
Ivy subtracts the $11 from the $181 maximum penalty and enters the result, $170, on Form 2210, line 17, and on Form 1040, line 76. She adds $170 to her $15,946 tax balance and enters the result, $16,116 on line 75 of her Form 1040. Ivy files her return on March 31 and attaches a check for $16,116. Because Ivy did not check any of the boxes in Part II, she does not attach Form 2210 to her tax return.