The penalty for paying estimated taxes late works like interest on whatever you underpaid: the IRS multiplies your shortfall by the federal underpayment rate and charges you for the number of days the money was late, running until you pay or until April 15 of the following year, whichever comes first.1Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual To Pay Estimated Income Tax For the first quarter of 2026 that rate is 7%, dropping to 6% for the second quarter.2Internal Revenue Service. Quarterly Interest Rates The estimated tax late payment penalty applies quarter by quarter, so you can owe it on one missed installment even if you overpaid another, and even if your annual return ends up producing a refund.3Internal Revenue Service. Estimated Taxes
How the Penalty Is Calculated
The charge under Section 6654 is not a flat fee. The IRS takes the amount you underpaid for a given quarter, applies the underpayment interest rate in effect, and runs the clock from that quarter’s due date until you pay it or until the following April 15.1Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual To Pay Estimated Income Tax
Because the clock keeps running, the penalty grows the longer the underpayment sits. A $5,000 shortfall from the April deadline costs far more than the same shortfall from September, because it accrues for roughly nine months instead of three. Each quarter is figured on its own, which is why an overpayment in one period doesn’t automatically cancel a shortfall in another.
Current Underpayment Rates
The underpayment rate resets every three months and is set at the federal short-term rate plus three percentage points for individual taxpayers.4Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026 The first quarter of 2026 carries a 7% rate; the second quarter is 6%.2Internal Revenue Service. Quarterly Interest Rates Because the rate can shift while your underpayment is outstanding, the IRS applies each period’s rate to the days that fall within it.
Safe Harbors That Eliminate the Penalty
You owe nothing under Section 6654 if you meet any one of these tests:5Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
- Your return shows you owe less than $1,000 after subtracting withholding and credits.
- You paid at least 90% of the tax you owe for the current year through withholding and estimated payments combined.
- You paid at least 100% of the tax shown on last year’s return.
The prior-year figure rises to 110% if your adjusted gross income for the previous year exceeded $150,000, or $75,000 if you file married filing separately.1Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual To Pay Estimated Income Tax That threshold trips up higher earners in years when income jumps: matching last year’s tax dollar for dollar isn’t enough, and the extra 10% is the difference between safe and penalized.
The prior-year safe harbor works only if you filed a return for the previous year and it covered a full 12 months. If you didn’t file, or had a short year, the 90% current-year test is your only option.1Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual To Pay Estimated Income Tax
The Annualized Income Method for Uneven Earnings
The default calculation assumes your income arrived evenly across the year. If it didn’t, that assumption can inflate what you supposedly owed in earlier quarters. The annualized income installment method recalculates each quarter’s required payment based on what you actually earned through that period.6Internal Revenue Service. Instructions for Form 2210
You claim it by completing Schedule AI on Form 2210 and attaching it to your return. Each column covers a cumulative period, so the first quarter reflects January through March, the second reflects January through May, and so on. For a seasonal business, a late-year capital gain, or any income spike after the earlier deadlines, this method can shrink or wipe out the penalty.
Getting an Existing Penalty Removed
Even if a safe harbor doesn’t save you, several routes can still eliminate the charge.
Waivers Built Into Section 6654
The statute itself lets the IRS waive the estimated tax penalty in two situations, both claimed on Form 2210:1Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual To Pay Estimated Income Tax
- The underpayment resulted from a casualty, disaster, or other unusual circumstance where charging the penalty would be unfair. In federally declared disaster areas the IRS often applies this relief automatically by county, so affected taxpayers don’t need to file Form 2210 at all.7Internal Revenue Service. Instructions for Form 2210
- 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 willful neglect.
Reasonable Cause
Outside those specific waivers, you can ask the IRS to remove a penalty by showing reasonable cause. The agency recognizes situations like natural disasters, serious illness or death in the immediate family, unavoidable absence, and system failures that prevented a timely electronic payment. Lacking the money to pay, on its own, does not qualify, though the IRS may weigh it alongside other facts showing you tried to comply.8Internal Revenue Service. Penalty Relief for Reasonable Cause
First-Time Penalty Abatement
If you have a clean compliance record, the IRS offers first-time penalty abatement. To qualify, you generally need to have filed all required returns and had no penalties for the three prior tax years. First-time abatement covers the failure-to-pay penalty under Section 6651 rather than the Section 6654 estimated tax penalty itself, but it matters here because the two often show up together. You can request it before paying the full balance, though the underlying penalty keeps accruing until the tax is paid, and you can ask again for that additional amount afterward.9Internal Revenue Service. Administrative Penalty Relief
How to Request Relief
Start with the toll-free number printed on your penalty notice. Have the notice in front of you, know which penalty you want removed, and be ready to explain why. Representatives can approve some requests on the call itself.10Internal Revenue Service. Penalty Relief
If the call doesn’t resolve it, file Form 843, Claim for Refund and Request for Abatement, in writing.10Internal Revenue Service. Penalty Relief The form asks for your identifying information, the tax period, and the dollar amount you want removed.11Internal Revenue Service. Form 843 – Claim for Refund and Request for Abatement Use a separate form for each tax period. In the explanation, tie your evidence to the specific deadlines you missed; general hardship statements that don’t connect to particular dates rarely succeed.
Form 843 has to be mailed to the IRS service center that handles current-year returns for the tax involved; there is no electronic filing option.12Internal Revenue Service. Where to File for Form 843 Send it certified so you have proof of delivery, and include copies of supporting records: medical documentation, disaster declarations, correspondence showing IRS error.
If the IRS denies the request, the denial letter will explain your appeal rights and how to pursue them.13Internal Revenue Service. Penalty Appeal If you still owe tax while a decision is pending and can’t pay it all at once, an installment agreement lets you pay over time and holds off more aggressive collection.
Other Charges That Can Stack On Top
The Section 6654 estimated tax penalty is not the only thing the IRS may charge. If you file your annual return with a balance you don’t pay by the filing deadline, a separate failure-to-pay penalty under Section 6651 adds 0.5% of the unpaid tax per month or partial month, capped at 25%. That rate doubles to 1% per month if the IRS issues a notice of intent to levy and you still don’t pay.14Office of the Law Revision Counsel. 26 USC 6651 – Failure To File Tax Return or To Pay Tax
Not filing at all is worse: a failure-to-file penalty runs at 5% per month, also capped at 25%. When both apply in the same month, the failure-to-file amount is reduced by the failure-to-pay amount, so the combined hit for that month is 5%.15Internal Revenue Service. Failure to File Penalty File on time even if you can’t pay; late filing is punished far more harshly than late payment.
Underpayment interest also compounds daily on any unpaid tax and on unpaid penalties, at the same rate used for the estimated tax charge.16Internal Revenue Service. Interest The IRS almost never waives interest, even when it removes a penalty, so paying down the underlying tax is the fastest way to stop the meter.