How to Calculate the Underpayment Penalty: Form 2210 Step by Step

To calculate the underpayment penalty on Form 2210, you figure your required annual payment, split it into four installments matched to the quarterly deadlines, compare each installment to what you actually paid through withholding and estimated taxes, and then apply the IRS underpayment interest rate day by day to any shortfall until it’s covered or the return is due. The penalty behaves like interest on money the government should have received earlier in the year.

First Check Whether You Owe a Penalty at All

Before working through Form 2210, confirm you actually owe something. You won’t owe a penalty if any one of these applies:

Your total tax for the year minus withholding is less than $1,000.
You paid at least 90 percent of this year’s tax through withholding and estimated payments.
You paid at least 100 percent of last year’s tax the same way.
You owed no tax last year, you were a U.S. citizen or resident the whole year, and that year covered 12 months.

Meeting one test is enough.¹ One wrinkle for higher earners: if your prior-year adjusted gross income was over $150,000 (or $75,000 if married filing separately), the prior-year safe harbor rises to 110 percent. On a $20,000 prior-year tax bill, that means paying at least $22,000 this year to clear the safe harbor.²

What to Have in Front of You

Pull these together before you open the form:

Last year’s Form 1040, for the total tax figure that sets your prior-year safe harbor.
This year’s return, drafted or complete. Form 2210’s opening lines pull straight from your 1040.
Dates and amounts of every estimated payment, including any prior-year overpayment you applied forward.
W-2s and 1099s showing federal withholding. The IRS treats wage withholding as paid in equal amounts across the four periods, regardless of when it was actually withheld.

Form 2210 is on the IRS website and built into most tax software, which fills it in automatically from your return data.³

Step 1: Find Your Required Annual Payment

Part I of Form 2210 produces one number: your required annual payment. It’s the smaller of 90 percent of this year’s tax or 100 percent (110 percent for higher earners) of last year’s tax.⁴ That’s the total the IRS expected you to pay in during the year.

Step 2: Split It Into Four Installments and Compare

Divide the required annual payment into four equal installments, each tied to a payment deadline:

Period 1, January 1 through March 31, due April 15, 2026.
Period 2, April 1 through May 31, due June 16, 2026.
Period 3, June 1 through August 31, due September 15, 2026.
Period 4, September 1 through December 31, due January 15, 2027.

You can skip the January 15 payment if you file and pay in full by February 1.²

For each period, add up what you paid through that date (withholding treated as spread evenly, plus any estimated payments made by the deadline) and compare it to the installment due. If payments fell short, that period has an underpayment. The calculation runs sequentially: an overpayment in one period rolls forward to offset a later shortfall, and a shortfall keeps accruing a charge until a later payment covers it.

Step 3: Apply the Interest Rate to Each Underpayment

The penalty on each period’s shortfall is the IRS underpayment interest rate applied to the unpaid amount for the number of days it was late. The rate equals the federal short-term rate plus three percentage points and resets each quarter.⁵

Published rates for 2026 so far:

Interest compounds daily, so each day’s charge is added to the running balance before the next day’s interest is figured.⁸ Convert the annual rate to a daily rate by dividing by 365, then apply it to the outstanding shortfall for every day from the installment deadline until the earlier of the date a payment covers it or April 15 of the following year.

Because the rate can shift mid-stretch, one underpayment often spans two rates. A shortfall from the September 15 deadline, for instance, accrues at the fourth-quarter rate through December 31 and switches to the first-quarter rate on January 1. The worksheet in the Form 2210 instructions walks through the day-counting for each period. Add the four results and you have your total penalty.

When to Use Schedule AI Instead

The equal-installment method assumes your income arrived in four even chunks. If it didn’t — a seasonal business, a late-year capital gain, income that ramped up only in the fall — Schedule AI lets you recalculate each installment based on income actually earned by that point.⁹

Schedule AI uses four cumulative windows: January through March, January through May, January through August, and the full year. For each, you compute income, deductions, and tax as if the partial-year figure were annualized, then compare the resulting annualized installment to the regular one and use the smaller.

Three rules shape how it works. Once you use Schedule AI for one period, you have to use it for all four. Any reduction in an earlier period is recaptured, meaning the next period’s required installment goes up by what you saved. And to use the method, check box C in Part II of Form 2210 and attach both the form and Schedule AI to your return.

When to Skip the Form and Let the IRS Bill You

You don’t have to do any of this yourself. If you aren’t requesting a waiver, using the annualized income method, or treating withholding as paid on specific dates, leave the penalty line on your 1040 blank and skip Form 2210. The IRS will calculate the penalty and send you a bill.⁹ File by April 15 and pay the billed amount by the date on the notice, and no additional interest accrues on the penalty itself. For steady income with no exceptions in play, that’s often the simplest route.

You must file Form 2210 if you check box B (waiver for casualty or unusual circumstances), box C (annualized income), or box D (withholding treated as paid on actual dates). In those cases the IRS can’t reproduce your math without the form.

Waivers That Can Reduce the Penalty

Even when the numbers produce a penalty, the IRS can waive part or all of it:

If you retired after reaching age 62 or became disabled during the tax year or the year before, and the underpayment was due to reasonable cause rather than neglect, check box A in Part II and attach documentation of your retirement date and age, or the date your disability began.
If a casualty, disaster, or other unusual event caused the underpayment and charging the penalty would be unfair, check box B and attach supporting documents such as police or insurance reports.
If you live in a federally declared disaster area, the IRS generally applies relief automatically and you typically don’t need to file Form 2210 for it.

For any waiver request, attach a written statement explaining why you couldn’t meet the estimated tax requirements and which periods you’re asking relief for. The IRS reviews the documentation and decides.⁹

Entering the Penalty and Paying It

Carry the total from Form 2210 to line 38 of Form 1040 and attach the form to your return.³ Software does this on its own. Paper filers should place Form 2210 behind the 1040.

Pay the penalty with any remaining balance through IRS Direct Pay, EFTPS, or debit or credit card. A mailed check works too; write your Social Security number and the tax year (for example, “2025 Form 1040”) on it so it posts correctly.¹⁰

1
Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual To Pay Estimated Income Tax
2
Internal Revenue Service. Form 1040-ES – 2026 – Estimated Tax for Individuals
3
Internal Revenue Service. Form 2210 – Underpayment of Estimated Tax by Individuals, Estates, and Trusts
4
Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual To Pay Estimated Income Tax
5
Office of the Law Revision Counsel. 26 USC 6621 – Determination of Rate of Interest
6
Internal Revenue Service. Section 6621 – Determination of Rate of Interest
7
Internal Revenue Service. Internal Revenue Bulletin 2026-08
8
Internal Revenue Service. Quarterly Interest Rates
9
Internal Revenue Service. Instructions for Form 2210
10
Internal Revenue Service. Penalties