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-
- 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.
If you use the regular method, figure your underpayment for each payment period in Section A, then figure your penalty for each payment period in Section B.taxmap/pubs/p505-024.htm#en_us_publink1000207515
Figure your underpayment of estimated tax for each payment period in Section A following the line-by-line instructions. Complete lines 20 through 26 of the first column before going to line 20 of the next column.taxmap/pubs/p505-024.htm#en_us_publink1000207516
Your required payment for each payment period (line 18) is usually one-fourth of your required annual payment (Part I, line 9). However, if you are using the annualized income installment method (described beginning on this page), first complete Schedule AI (Form 2210), and then enter the amounts from line 25 of that schedule on line 18 of Form 2210, Part IV.taxmap/pubs/p505-024.htm#en_us_publink1000207517
On line 19, enter in each column the total of:
- 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
- One-fourth of your withholding.
For special rules for figuring your payments, see the Instructions for Form 2210.
If you file Form 1040, your withholding is the amount on line 61, plus any excess social security or tier 1 RRTA tax withholding on line 69. If you file Form 1040A, your withholding is the amount on line 38 plus any excess social security or tier 1 RRTA tax withholding included in line 44.taxmap/pubs/p505-024.htm#en_us_publink1000207518
Instead of using one-fourth of your withholding for each quarter, you can choose to use the amounts actually withheld by each due date. You can make this choice separately for the tax withheld from your wages and for all other withholding. This includes any excess social security and tier 1 RRTA tax withheld.
Using your actual withholding may result in a smaller penalty if most of your withholding occurred early in the year.
If you use your actual withholding, you must check box D in Form 2210, Part II. Then complete Form 2210 using the regular method and file it with your return.taxmap/pubs/p505-024.htm#en_us_publink1000207519
If you received your income evenly throughout the year, use the regular installment method to figure your estimated tax underpayment for the year.taxmap/pubs/p505-024.htm#en_us_publink1000207520
Ben and Sally Brown's 2009 tax after credits is $6,519 (Form 1040, line 55). Ben owes self-employment tax of $1,413. Their 2008 AGI was less than $150,000. They do not owe any other taxes. Their only credit is the making work pay credit of $800. Their 2008 tax was $8,116. See Figure 4-B
on page 57 to see Ben and Sally's completed Form 2210, Part I.
Ben's employer withheld $1,220 income tax and Sally's withheld $364 during 2009 ($1,584 total withholding). They paid no estimated tax for either the first or second period, but they paid $900 each on September 15, 2009, and January 15, 2010, for the third and fourth periods. Because the total of their withholding and estimated tax payments, $3,384 ($1,584 + $900 + $900), was less than both 90% of their 2009 tax (90% x $7,132 = $6,419) and 100% of their 2008 tax ($8,116), they owe a penalty for underpayment of estimated tax. They decide to figure the penalty on Form 2210 and pay it with their $3,748 tax balance ($7,132 − $3,384) when they file their tax return on April 15, 2010.
Their required annual payment (Part I, line 9) is $6,419. Because their income and withholding were distributed evenly throughout the year, they enter one-fourth of their required annual payment, $1,605, in each column of line 18 (see Figure 4-B (Continued)
on page 58). On line 19, they enter one-fourth of their withholding, $396, in the first two columns and $1,296 ($396 + $900 estimated tax payment) in the last two columns.
They have an underpayment (line 25) for each payment period. Their estimated tax payments are first applied to underpayments for the earlier periods.taxmap/pubs/p505-024.htm#en_us_publink1000207521
If you did not receive your income evenly throughout the year (for example, your income from a repair shop you operated 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 (line 18) for one or more payment periods may be less than one-fourth of your required annual payment.
To figure your underpayment using this method, complete Schedule AI of Form 2210 (see Figure 4-C
on page 59 for an example). The schedule 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. You also 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.
Follow the Form 2210 instructions to complete Schedule AI. For each period shown on Schedule AI, figure your income and deductions based on your method of accounting. If you use the cash method of accounting (used by most people), include all income actually or constructively received during the period and all deductions actually paid during the period.
Each period includes amounts from the previous period(s).
- Period (a) includes items for January 1 through March 31.
- Period (b) includes items for January 1 through May 31.
- Period (c) includes items for January 1 through August 31.
- Period (d) includes items for the entire year.
Laura Maple files as head of household with three exemptions. Her 2009 total tax (Form 1040, line 60) is $4,730, the total of her $2,384 income tax and $2,346 self-employment tax. Laura also has two refundable credits, making work pay ($400) and earned income credit (EIC) ($99). Her current year's tax is $4,231 ($4,730 − $499 refundable credits). She does not owe any other taxes. Her 2008 AGI was less than $150,000. Her 2008 tax was $4,100. Her required annual payment on Form 2210, Part I, line 9, is $3,808 (the smaller of her $4,100 tax for 2008 or 90% of her $4,231 tax after refundable credits for 2009).
Laura's employer withheld $756 income tax during 2009. Laura made no estimated tax payments for the first, second or third periods, but she paid $100 on January 15, 2010, for the fourth period.
Laura did not receive her income evenly throughout the year. Therefore, she decides to figure her required installment for each period (Part IV, line 18) using the annualized income installment method. To use this method, Laura completes Schedule AI before starting Part IV. Figure 4-C
, on pages 59 and 60, shows Laura's filled-in Schedule AI and Part IV.
Laura's wages during 2009 were $24,396 ($2,033 per month). Her net earnings from a business she started during the year was $16,600 (Schedule SE, line 2), received as follows.
|April through May||$ 1,000|
|June through August||2,500|
|September through December||13,100|Self-employment tax and deduction.
Before Laura can figure her AGI for each period (Schedule AI, line 1), she must figure her deduction for self-employment tax for each period. To do this, she first completes Schedule AI, Part II, (see Figure 4-C
on page 59).
Laura had no self-employment income for the first period, so she leaves the lines in that column blank. Her self-employment income was $1,000 for the second period, $3,500 ($1,000 + $2,500) for the third period, and $16,600 ($3,500 + $13,100) for the fourth period. She multiplies each amount by 92.35% (.9235) to find the amounts to enter on line 26. She then fills out the rest of Part II.
Laura figures the deduction for one-half of the self-employment tax by dividing the amounts on line 34 by the annualization amounts for each period. The annualization amounts are:
- 8 for the first period,
- 4.8 for the second period,
- 3 for the third period, and
- 2 for the fourth period.
Laura figures the amounts to enter on Schedule AI, line 1, as follows.
| Column (a)— 1/1/09 to 3/31/09:|| |
|$2,033 per month × 3 months|| $ 6,099 |
| Column (b)— 1/1/09 to 5/31/09:|
$2,033 per month × 5 months
|Plus:||Self-employment income through 5/31/09||+ 1,000|
|Less:||Self-employment tax deduction ($339 ÷ 4.8)|| − 71 |
| || || || $11,094 |
| Column (c)— 1/1/09 to 8/31/09: |
$2,033 per month × 8 months
|Plus:||Self-employment income through 8/31/09||+ 3,500|
|Less:||Self-employment tax deduction ($742 ÷ 3)|| − 247 |
| || || || $19,517 |
| Column (d)— 1/1/09 to 12/31/09:|| |
|$2,033 per month × 12 months||$24,396|
|Plus:||Self-employment income through 12/31/08||+16,600|
|Less:||Self-employment tax deduction ($2,346 ÷ 2)|| − 1,173 |
| || || || $39,823 |
Laura had $9,000 in itemized deductions for 2009—$50 per month withheld for state and local taxes, $550 per month for mortgage interest, and $150 per month in charitable contributions—for a total of $750 each month. She divided them by period in the following manner.
- 1st period: $2,250 ($750 × 3 months).
- 2nd period: $3,750 ($750 × 5 months).
- 3rd period: $6,000 ($750 × 8 months).
- 4th period: $9,000 ($750 × 12 months).
She enters each amount on line 4 in the proper column for that period.
Now that Laura has figured her entries for lines 1 and 4, she can complete the rest of Schedule AI to determine the amounts to put on Form 2210, Part IV, line 18. Laura figures her EIC on Schedule AI, line 16, for each period using her annualized earned income (Schedule AI, line 3) for that period. Figure 4-C
on page 59 shows her completed Parts I and II of Schedule AI.
Laura then figures her underpayment in Part IV, Section A (see Figure 4-C (Continued)
on page 60). She finds that she overpaid her estimated tax for the first three payment periods, but underpaid her estimated tax for the last payment period.
Figure the amount of your penalty in Section B following the instructions. The penalty is imposed on each underpayment shown in Section A, line 25, for the number of days that it remained unpaid. (You may find it helpful to show the date of payment beside each amount on line 25.)
For 2009, there is only one rate period—the 4% rate is in effect from April 16, 2009, through April 15, 2010. Use lines 29 and 30 to figure the penalty. taxmap/pubs/p505-024.htm#en_us_publink1000207532
(see page 53) provides a simple method for counting the number of days between payment dates or between a due date and a payment date.
- 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."
For example, if a payment was due on June 15 (61), but was not paid until November 4 (203), the payment was 142 (203 − 61) days late.taxmap/pubs/p505-024.htm#en_us_publink1000207533
Table 4-1. Calendar To Determine the Number of Days a Payment Is Late 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 2009 |
|29||14||44||75||105||136||167||197||228||258||289|| ||348|| |
|30||15||45||76||106||137||168||198||229||259||290|| ||349|| |
|31|| ||46|| ||107||138|| ||199|| ||260||291|| ||350|| |
Before completing Section B, make a list of the payments you made after the due date (or the last day payments could be made on time) for the earliest payment period an underpayment occurred. For example, if you had an underpayment for the first payment period, list your payments after April 15, 2009. You can use the table in the Form 2210 instructions to make your list. Follow those instructions for listing income tax withheld and payments made with your return. Use the list to determine when each underpayment was paid.
If you mail your estimated tax payments, use the date of the U.S. postmark as the date of payment.taxmap/pubs/p505-024.htm#en_us_publink1000207536
If an underpayment was paid in two or more parts on different dates, you must figure the penalty separately for each part. You may find it helpful to show the underpayment on Section A, line 25, broken down into the amounts paid on different dates. See lines 29 and 30 of Figure 4-B (Continued)
on page 58 for an example of this.
For each underpayment on line 25, columns (a)–(d), figure the penalty by:
- Determining the date(s) an underpayment was paid,
- Determining the number of days between the due date and the payment date(s), and
- Multiplying the amount of underpayment by the number of days unpaid and the penalty rate.
If an underpayment remained unpaid for the entire period, Table 4-2
shows the number of days to enter for each period.
|Table 4-2. Chart of Total Days |
|Rate Period||Column |
To figure the total penalty, add the amounts on line 30 in all columns. Enter the total on line 31.taxmap/pubs/p505-024.htm#en_us_publink1000207540
In the previous example for Ben and Sally Brown (see Example
under Regular Installment Method
on page 51), they determined that they had an underpayment for all four payment periods. See their completed Section A in ( Figure 4-B (Continued)
) on page 58.
Ben and Sally's 2009 tax is $7,132. Their minimum required payment for each period is $1,605 ($6,419 ÷ 4). Their $1,584 withholding is considered paid in four equal installments of $396, one on each payment due date. Therefore, they must make estimated tax payments of $1,209 ($1,605 − $396) each period. However, they made only two estimated tax payments—$900 on September 15, 2009, and $900 on January 15, 2010. They plan to file their return and pay their balance due on April 15, 2010. They are considered to have made the following payments for tax year 2009.
|April 15, 20091 ||$ 396|
|June 15, 20091 ||396|
|September 15, 20092 ||900|
|September 15, 20091 ||396|
|January 15, 20102 ||900|
|January 15, 20101 ||396|
| 1 One-fourth of withholding|
| 2 Estimated tax payment|
Their $1,209 underpayment for the first payment period was paid by applying two payments—the $396 payment on June 15, 2009, and $813 of the $1,296 payment on September 15, 2009. The $396 remained unpaid 61 days (April 16 through June 15, 2009) and the $813 remained unpaid 153 days (April 16 through September 15, 2009). They enter "61" and "153" on line 29, column (a) along with the date of each payment.
Next they figure the penalty separately for each underpayment amount, $2.65 ($396 × (61 ÷ 365) × .04) and $13.63 ($813 × (153 ÷ 365) × .04). See their completed Section B in Figure 4-B (Continued)
on page 58.
The $1,605 underpayment on line 25, column (b), remained unpaid until September 15 (92 days), when the $483 that remained of the September payment ($1,296 – $813) was applied.
The remaining underpayment of $1,122 ($1,605 − $483) was paid by the January 15 payment (214 days underpaid). They enter "92" and "214" on line 29, column (b), and figure the penalty separately for each underpayment amount. See their completed Section B in Figure 4-B (Continued)
on page 58.
The $1,605 underpayment on line 25, column (c), remained fully underpaid until the remaining $174 of the January 15 payment was applied (122 days). There were no remaining payments to apply. The balance of $1,431 ($1,605 − $174) remained unpaid until 4/15/10 (212 days) when they filed and paid their balance due. They enter "122" and "212" on line 29, column (c), and figure the penalty separately for each underpayment amount on line 30.taxmap/pubs/p505-024.htm#en_us_publink1000207546
Since all payments have been applied, the entire amount remained unpaid 90 days (January 16 through April 15, 2010). They enter that number on line 29, column (d), and figure the penalty for the $1,605 underpayment, entering it on line 30 column (d).taxmap/pubs/p505-024.htm#en_us_publink1000207547
Ben and Sally's total penalty for 2009 on line 31 is $98.87, the total of all amounts on line 30 in all columns. They enter that amount on line 76 of their Form 1040. They also add $98.87 to their $3,748 tax balance and enter the $3,846.87 total on line 75. They file their return on April 15 and include a check for $3,846.87. They keep their completed Form 2210 for their records.taxmap/pubs/p505-024.htm#en_us_publink1000207548
In the previous example
for Laura Maple (under Completing Schedule AI
on page 51), her first underpayment was for the last payment period. See Laura's completed Section A in Figure 4-C (Continued)
on page 60.
This example illustrates completion of Part IV, Section B, of Laura's Form 2210 under the annualized income installment method.
Laura made the following payments for tax year 2009.
|April 15, 20091 ||$ 189|
|June 15, 20091 ||189|
|September 15, 20091 ||189|
|January 15, 20102 ||100|
|January 15, 20101 ||189|
| 1 One-fourth of withholding|
| 2 Estimated tax payment|taxmap/pubs/p505-024.htm#en_us_publink1000207552
Laura's $2,952 underpayment for the fourth payment period was paid on April 15, 2010, with her tax return. The entire amount remained unpaid 90 days (January 16 through April 15, 2010). Laura enters that number on line 29. She shows the result of the penalty computation on line 30 (see Figure 4-C (Continued)
on page 60).
Laura's total penalty for 2009 on line 31 is $29.12, the amount on line 31. Laura enters that amount on line 76 of her Form 1040. She also adds $29.12 to her $3,375 tax balance and enters the $3,404.12 total on line 75. She files her return on April 15 and includes a check for $3,404.12. Because she used the annualized income installment method, she must attach Form 2210, including Schedule AI, to her return and check box C in Part II.