Regular Method for Figuring the Penalty (Part IV)(p59)

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 line-by-line instructions. Complete lines 20 through 26 of the first column before going to line 20 of the next column.

Your required payment for each payment period (line 18) is usually one-fourth of your required annual payment (Part I, line 9). This method—the regular method—is the one to use if you received your income evenly throughout the year.

However, if you did not receive your income evenly throughout the year, you may be able to lower or eliminate your penalty by figuring your underpayment using the annualized income installment method. First complete Schedule AI (Form 2210), then enter the amounts from line 25 of that schedule on line 18 of Form 2210, Part IV. See Annualized Income Installment Method (Schedule AI), later.

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 Form 2210 instructions for line 19.

If you file Form 1040, your withholding is the amount on line 62, 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 36 plus any excess social security or tier 1 RRTA tax withholding included in line 41.

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 (Part IV) and file it with your return.

Ben and Sally Brown's 2011 tax after credits is $6,871 (Form 1040, line 55). Ben owes self-employment tax of $1,413. Their 2010 AGI was less than $150,000. They do not owe any other taxes. Their 2010 tax was $8,116. Go to Figure 4-B, later, 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 2011 ($1,584 total withholding). They paid no estimated tax for either the first or second period, but they paid $950 each on September 15, 2011, and January 15, 2012, for the third and fourth periods. Because the total of their withholding and estimated tax payments, $3,484 ($1,584 + $950 + $950), was less than both 90% of their 2011 tax (90% x $8,284 = $7,456) and 100% of their 2010 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 $4,800 tax balance ($8,284 - $3,484) when they file their tax return on April 17, 2012.

Their required annual payment (Part I, line 9) is $7,456. Because their income and withholding were distributed evenly throughout the year, they enter one-fourth of their required annual payment, $1,864, in each column of line 18 (go to Figure 4-B (Continued), later). On line 19, they enter one-fourth of their withholding, $396, in the first two columns and $1,346 ($396 withholding (WH) + $950 estimated tax payment (EST)) in the last two columns.

They have an underpayment (line 25) for each payment period.

Figure the amount of your penalty for Section B using the Penalty Worksheet in the Form 2210 instructions. The penalty is imposed on each underpayment shown in Section A, line 25, for the number of days that it remained unpaid.

For 2011, there are four rate periods—a 4% rate is in effect from April 16, 2011 through June 30, 2011 and from July 1, 2011 through September 30, 2011, and a 3% rate is in effect from October 1, 2011 through December 31, 2011 and from January 1, 2012 through April 15, 2012. Use the Penalty Worksheet to figure the penalty and enter the result in Section B, line 27 of Form 2210.

Before completing the Penalty Worksheet, it may be helpful to make a list of the payments you made and income tax withheld 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, 2011. 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.

Apply the payments listed to underpayment balance in the first column until it is fully paid. Apply payments in the order made.

In the previous example for Ben and Sally Brown (see Example—regular method under Figuring Your Underpayment (Part IV, Section A)), they determined that they had an underpayment for all four payment periods. See their completed Section A in Figure 4-B (Continued), later.

Their $1,584 withholding (WH) is considered paid in four equal installments of $396, one on each payment due date. Therefore, they must make estimated tax payments (EST) of $1,468 ($1,864 required installment - $396 WH) each period. However, they made only two estimated tax payments—$950 on September 15, 2011, and $950 on January 15, 2012. They plan to file their return and pay their balance due on April 17, 2012. Ben and Sally are considered to have made the following payments for tax year 2011.

Payment Amount	Payment Date
$396 WH	4/15/11
$396 WH	6/15/11
$396 WH	9/15/11
$950 EST	9/15/11
$396 WH	1/15/12
$950 EST	1/15/12

Ben entered the underpayment amount from line 25 of Form 2210 on line 1a of their Penalty Worksheet for each column. On line 1b, column (a) he entered "6/15/11 – 396" and "9/15 – 1,072." Their combined payment for 9/15/11 was $1,346 ($396 WH + $950 EST). They used $1,072 of the 9/15 payment to fully pay the underpayment on line 1a, column (a). He entered "9/15/11 – 274" (the remainder of their September payment) and "1/15/12 – 1,346" from January to fully pay the underpayment in column (b).

If an underpayment was paid in two or more payments on different dates, you must figure the penalty separately for each payment. On line 3 of the Penalty Worksheet enter the number of days between the due date (line 2) and the date of each payment on line 1b. On line 4 figure the penalty for the amount of each payment applied on line 1b or the amount remaining unpaid. If no payments are applied, figure the penalty on the amount on line 1a.

Table 4-1 provides a simple method for counting the number of days between a due date and a payment date.

1. 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.
2. In the same manner, find the number for the date the payment was made.
3. 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 September 1 (139), the payment was 78 (139 – 61) days late.

Continuing from the previous example for Ben and Sally Brown (see Example 1 under Line 1b), they figure their penalty. First, they complete lines 3 and 4 for Rate Period 1, which runs from April 16, 2011, to June 30, 2011.

Line 1b of their Penalty Worksheet shows "6/15/2011 – 396" and
"9/15/11 – 1,072." $396 remained unpaid 61 days (April 16 through June 15, 2011) and $1,072 remained unpaid 76 days (April 16 through June 30, 2011). On line 3, column (a), they enter "61" and "76," along with the date of each payment.

Next, on line 4, they figure the penalty separately for each underpayment amount, $2.65 ($396 × (61 ÷ 365) × .04) and $8.93 ($1,072 × (76 ÷ 365) × .04). See their completed Penalty Worksheet, later.

For Rate Period 2, $1,072 of the underpayment remained unpaid for 77 days (June 30, 2011 to September 15, 2011). Ben and Sally enter "77" on line 6.

Line 1b for column (b) shows "9/15/11 – 274" and "1/15/12 – 1,346." $274 remained unpaid until June 30 (15 days). $1,346 remained unpaid until June 30. The number of days from June 15 until the end of Rate Period 1 (June 30) is 15. They enter "15" and "15" on line 3, column (b), and figure the penalty separately for each underpayment amount.

For Rate Period 2, $274 of the underpayment remained unpaid for 77 days (June 30, 2011 to September 15, 2011), and the remaining $1,346 remained unpaid for 92 days (June 30, 2011 to September 30, 2011).

For Rate Period 3, $1,346 of the underpayment remained unpaid for 92 days (September 30, 2011 to December 31, 2011).

For Rate Period 4, $1,346 of the underpayment remained unpaid for 15 days (December 31, 2011 to January 15, 2012).

The $1,864 underpayment on line 1a, column (c), remained fully underpaid for 15 days during the second rate period.

For Rate Period 3, the entire balance remained unpaid for 92 days (September 30, 2011 to December 31, 2011).

For Rate Period 4, the entire balance remained unpaid for 106 days (December 31, 2011 to April 15, 2012).

Since all payments have been applied, the entire amount remained unpaid 91 days (January 16 through April 15, 2012). They enter that number on line 12, column (d), and figure the penalty for the $1,864 underpayment, entering it on line 13, column (d).

Ben and Sally's total penalty for 2011 on line 14 is $98.23, the total of all amounts on lines 4, 7, 10, and 13 in all columns. See their completed Penalty Worksheet.

Ben and Sally enter that amount on Form 2210, line 27, and on line 77 of their Form 1040. They also add $98.23 to their $4,000 tax balance and enter the $4,098.23 total on line 76. They file their return on April 17 and include a check for $4,098.23. They keep their completed Form 2210 for their records.