IRS Form 2210: How to Eliminate Underpayment Tax Penalties

The IRS expects you to pay taxes throughout the year, not just at filing time. If you miss a quarterly payment or fall short on withholding, you could end up with an underpayment penalty. But don’t panic just yet. You may be able to reduce or avoid that penalty by filing IRS Form 2210.

What Is IRS Form 2210?

Form 2210 helps you figure out if you owe a penalty for not paying enough tax during the year and how much that penalty is. It’s most commonly used by self-employed individuals or anyone with income not subject to withholding.

You’ll also use this form if you want to request a penalty waiver or explain why your income wasn’t evenly spread throughout the year.

The IRS doesn’t always require this form. They often calculate the penalty automatically. But when you want to dispute it or apply for an exception, Form 2210 gives you the opportunity to correct, reduce, or remove the penalty if your situation qualifies.

How the IRS calculates the underpayment penalty

The IRS calculates the underpayment penalty like interest on a loan. If you didn’t pay enough tax during the year through withholding or estimated payments, the IRS charges a penalty based on how much you underpaid, when the payment was due, and how long it was late.

To calculate this, the IRS splits the year into four payment periods and assumes you paid your taxes evenly. So if you owed $8,000 for the year, they expect you to have paid $2,000 each quarter. If you skipped or underpaid a quarter, the IRS charges a penalty on that portion, even if you caught up later.

The penalty is based on quarterly interest rates set by the IRS. For 2025, the annual rate is around 8%, and it’s applied separately for each quarter you underpaid.

You can avoid the penalty if you meet one of the IRS safe harbor rules:

• You paid at least 90% of your total tax liability for the current year, or
• You paid 100% of your total tax from the previous year (or 110% if your adjusted gross income exceeded $150,000)

If you’re a farmer or fisher and at least two-thirds of your gross income came from those activities, you can use 66.67% instead of 90%.

When Do You Need to File IRS Form 2210?

You need to file Form 2210 along with your tax return if:

• You want to request a waiver of the underpayment penalty
• You qualify for an exception (disaster relief, retirement, disability)
• You’re filing a return for a deceased taxpayer
• Your income wasn’t earned evenly throughout the year

For example, if most of your income came from a large project completed in the last quarter of the year, you might benefit from using Schedule AI within Form 2210 to annualize your income and potentially reduce your penalty.

When does the IRS waive the underpayment penalty?

The IRS may waive the penalty if:

• You retired after reaching age 62 or became disabled in the past two years
• You faced a natural disaster or other unusual circumstance
• You had no tax liability in the previous year
• You made a good-faith effort to pay on time

To request a waiver, check the box on Part II of Form 2210 and include a written explanation. You may also need to provide documentation if claiming disaster-related relief.

How to File Form 2210

Form 2210 instructions offer two filing paths:

• Short method – Use this if your income was fairly even throughout the year and you made all payments on time. You may not need to fill out every line.
• Regular method – Use this if your income was uneven, or if you qualify for a waiver or exception. You’ll need to complete additional sections like Part IV and Schedule AI.

Form 2210 Instructions 2025

Form 2210 helps the IRS (and you) determine if your estimated payments were sufficient and, if not, whether a penalty applies. Here’s how to work through each section:

Flowchart (Top of Page 1)

This section tells you if you need to file Form 2210. If your total tax minus withholding is less than $1,000 or your payments meet safe harbor thresholds, the form might not be required unless you’re requesting a waiver or using Schedule AI.

Part I – Required Annual Payment

Here’s where you calculate how much you needed to pay in estimated tax during the year to avoid a penalty. You’ll:

• Start with your total 2024 tax (line 22 of Form 1040)
• Add in self-employment tax, Additional Medicare Tax, and Net Investment Income Tax
• Subtract refundable credits
• Use 90% of your current year’s tax or 100% of last year’s, whichever is lower (or 110% if you’re considered high-income)

This section helps establish your required payment threshold.

Part II – Reasons for Filing

This is where you tell the IRS why you’re attaching the form:

• Box A: You’re asking for a waiver
• Box B: You’re using Schedule AI
• Box C or D: You’re figuring your own penalty because you didn’t qualify for the IRS safe harbor

If none of these apply, you likely don’t need to file Form 2210. But you can still use it as a worksheet.

Part III – Penalty Computation

Section A compares what you should’ve paid each quarter versus what you actually paid. Even if you overpaid by the end of the year, late payments in earlier quarters can trigger a penalty.

• Line 10: Required installments
• Line 11: Actual payments
• Lines 12–18: Used to calculate underpayment or overpayment for each period

Section B is where you calculate the actual penalty using the worksheet. You’ll base this on the interest rate charged by the IRS for each underpaid period. Total the amounts and enter it on Line 19.

Part IV – Schedule AI (Annualized Income Installment Method)

Schedule AI lets you show that your income came in unevenly. For example, if you didn’t earn much until the second half of the year, this schedule can help reduce or eliminate penalties from the first few quarters.

You’ll:

• Break down income, deductions, and credits for each period
• Calculate the tax due for each timeframe
• Use the results to update your required quarterly payments on Line 10

This method can reduce your penalty if your income was lumpy, especially for freelancers, consultants, and seasonal workers.

How to avoid underpayment penalties in the future

The easiest way to avoid the penalty is by meeting one of the IRS safe harbor rules. Beyond that, here are a few additional tips to help you stay penalty-free.

• Use IRS Form 1040-ES to calculate and pay estimated taxes each quarter
• Withhold more from your paycheck or pension (if applicable)
• Adjust your quarterly payments when your income shifts
• Set calendar reminders for payment deadlines typically April 15, June 15, Sept 15, Jan 15)

If you’re living overseas, double-check time zone differences and holiday delays that could affect international wire transfers.

FAQs About Form 2210 and Underpayment Penalties

What is IRS Form 2210 used for?

Form 2210 helps you determine if you owe a penalty for underpaying your estimated taxes throughout the year. It also gives you a chance to request a waiver or reduce the penalty if your income was uneven.

Do I need to file Form 2210 if I already paid enough tax?

Maybe not. If you met one of the IRS safe harbor rules, like paying 90% of your 2024 tax or 100% of your 2023 tax, you usually don’t need to file it. But if you’re requesting a waiver or using Schedule AI, you’ll still need to attach the form.

What is the penalty rate for underpayment in 2025?

The penalty rate is based on IRS interest rates, which can change quarterly. As of early 2025, it’s around 8% per year. The penalty applies separately to each quarter you underpaid.

What’s the benefit of using Form 2210 – Schedule AI?

Schedule AI helps if your income was uneven, say, most of it came in late in the year. Instead of being penalized for not making larger earlier payments, you can allocate your income by quarter. This often results in a lower or no penalty at all.

What happens if I don’t pay the penalty the IRS calculates?

If you ignore the bill, the IRS will apply interest until it’s paid. They might also offset future refunds to cover it. It’s better to address it proactively with Form 2210 if you think it can be reduced or waived.

What’s the difference between Form 2210 and Form 2220?

Form 2210 is for individuals, estates, and trusts. Form 2220 is the business version for corporations calculating their estimated tax underpayment penalties. So, unless you’re filing as a business entity, use the Form 2210.

Wrapping It Up

Individuals with fluctuating income, like the self-employed, often struggle to calculate and make accurate estimated tax payments. That can lead to underpayment, and when it does, the IRS may hit you with a penalty. Form 2210 gives you a chance to address the penalty, and in some cases, reduce or avoid it entirely.

If you’re unsure whether this form applies to you or how to fill it out correctly, we’re here to help. Click below to book your FREE 30-minute consultation with one of our experts.