The IRS underpayment penalty is interest charged under IRC § 6654 when your withholding and estimated tax payments fall short of what you owed during the year. For the first quarter of 2026, the rate is 7% annually; it drops to 6% for the second quarter, with later quarters adjusted as the IRS announces them. The charge runs quarter by quarter on each shortfall, so a first-quarter miss costs more than a fourth-quarter miss because the money was outstanding longer. You can avoid it entirely by meeting one of three safe harbors.
Safe Harbors That Prevent the Penalty
You owe no penalty if your total withholding and estimated payments meet any one of these tests before the filing deadline.
You Owe Less Than $1,000
If your return shows a balance under $1,000 after subtracting withholding and estimated payments, no penalty applies. This catches most W-2 employees whose withholding covers nearly all of their liability, even with modest side income.
You Paid 90% of This Year’s Tax
Paying at least 90% of the tax shown on your current-year return protects you. The limitation is that you won’t know the exact figure until you finish the return, so this test tends to confirm the outcome after the fact rather than guide payments during the year.
You Paid 100% (or 110%) of Last Year’s Tax
Paying at least 100% of the tax shown on last year’s return is the most predictable safe harbor because the number is locked in. It shields you even if this year’s income jumps sharply. If your prior-year adjusted gross income exceeded $150,000 ($75,000 if married filing separately), the threshold rises to 110%. That higher-income step trips up people who don’t realize the percentage shifts.
Your required annual payment is whichever of the 90% and 100%/110% figures is smaller. The prior-year test doesn’t apply if you didn’t file last year or if the prior year wasn’t a full 12 months.
You Owed Nothing Last Year
If your prior-year tax was zero, you were a U.S. citizen or resident for the whole year, and that year covered a full 12 months, no penalty applies regardless of what you owe this year. This often helps students, recent graduates, or anyone who had a gap year without taxable income.
Quarterly Due Dates
The tax year splits into four unequal periods, each with its own deadline:
- First installment, April 15, covering January 1 through March 31.
- Second installment, June 15, covering April 1 through May 31.
- Third installment, September 15, covering June 1 through August 31.
- Fourth installment, January 15 of the following year, covering September 1 through December 31.
When a deadline lands on a weekend or legal holiday, payment is due the next business day. Each installment equals 25% of the required annual payment, not 25% of the income earned in that window. The IRS treats the quarterly minimum as fixed unless you use the annualized income method described below.
How the Penalty Is Calculated
The calculation runs quarter by quarter, not as one annual number. For each period, the IRS compares what you paid by the deadline against 25% of your required annual payment. Any shortfall accrues interest from the installment due date until the earlier of the payment date or the tax filing deadline.
The rate equals the federal short-term rate plus three percentage points, adjusted each quarter. The daily rate is the annual figure divided by 365. A $2,000 first-quarter shortfall at 7% runs about $0.38 per day, which comes to roughly $140 if it sits unpaid until the April filing deadline. A mid-year catch-up payment stops the clock early for that quarter.
Overpaying one quarter doesn’t erase an earlier miss. If you skip the April payment and make a large September payment, you still owe interest on the April shortfall for the months in between. Excess payments roll forward, not backward.
In most cases you don’t need to file Form 2210 yourself. The IRS calculates the penalty and sends a CP30 notice with the amount owed. File Form 2210 only if you want to use the annualized income method, request a waiver, or check the IRS’s math before the bill arrives.
Uneven Income Through the Year
Standard installments assume income arrives evenly. Real income rarely does. A real estate agent who closes most deals in summer, or an investor who sells a large position in December, would owe penalties on the earlier quarters even though the money hadn’t arrived yet.
The annualized income installment method, calculated on Schedule AI of Form 2210, bases each quarter’s required payment on the income you actually earned through the end of that period. If almost nothing came in during the first quarter and a large amount arrived in the fourth, this method can eliminate penalties for the earlier installments. Once you use it for one quarter, you must use it for all four, and Schedule AI attaches to your return alongside Form 2210.
How to Pay
Several channels get money to the IRS before each deadline. IRS Direct Pay moves funds from your bank account through irs.gov without registration. EFTPS lets you schedule payments up to 365 days ahead, which is useful for lining up all four quarters at once, though it requires enrollment. You can also pay through your IRS online account, by debit or credit card through a third-party processor (with fees), or by mailing a check with a Form 1040-ES voucher made payable to “United States Treasury” with “2026 Form 1040-ES” and your Social Security number on it.
If you overpaid last year, you can apply the refund to this year’s estimated tax on your return, and that amount counts toward your first-quarter installment.
Withholding as a Simpler Fix
If you have a W-2 job alongside freelance or investment income, raising withholding is often easier than making quarterly payments. Submit a new Form W-4 to your employer asking for additional withholding, and the extra amounts count toward the safe harbors just like estimated payments. Pension and annuity recipients can do the same with their payer. Unlike estimated payments, the IRS treats withheld taxes as paid evenly across the year regardless of when they were actually deducted, so a bump in December can cover early-quarter shortfalls.
When the IRS Will Waive the Penalty
Even if you miss every safe harbor, a waiver is available in specific situations.
The IRS may waive the penalty for a casualty, disaster, or other unusual circumstance that made the charge inequitable. For federally declared disaster areas, relief is often automatic based on zip code. If you’re outside the disaster zone but your records or preparer are inside it, call the IRS Disaster Hotline at 866-562-5227 with the FEMA disaster number.
The penalty can also be waived if you retired after reaching age 62 or became disabled during the tax year the payments were due or the year before, and the underpayment resulted from reasonable cause rather than neglect. File Form 2210 and check the waiver box to request this relief.
Farmers and Fishermen
If at least two-thirds of your gross income comes from farming or fishing, the rules loosen. You can make a single payment by January 15 of the following year instead of four installments, or skip estimated payments entirely if you file and pay in full by March 1. The current-year safe harbor also drops from 90% to 66⅔%.