IRS Form 2210 Instructions: Underpayment Penalties and Schedule AI

Author: Randall Brody, Enrolled Agent | Licensed by the U.S. Department of the Treasury | Last Reviewed: September 2026

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 IRS tax 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 underpayment penalty rate is the federal short-term rate plus three percentage points, set by the IRS each quarter and applied to each underpaid installment for the number of days it was late.

The Safe Harbor Rules

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%.

How Withholding Is Treated On Form 2210

Form 2210 generally treats federal income tax withholding as paid in four equal installments on the four due dates, regardless of when it was actually withheld. If your withholding was front-loaded, or a large amount was withheld from a year-end payment, you can instead check Box D in Part II to treat withholding as paid on the dates it was actually withheld and use the actual dates. That election can lower the penalty when withholding arrived early and raise it when withholding arrived late, so run both before choosing. Estimated tax payments, unlike withholding, are always credited on the date paid.

For expats, foreign tax withheld by a foreign employer or foreign government is not federal withholding for this purpose. It reduces your U.S. tax through the Foreign Tax Credit, which can lower the required annual payment in Part I, but it does not count as a payment on any installment date. An expat with only foreign withholding and no U.S. withholding or estimated tax payments is generally treated as having made no U.S. estimated-tax payments during the year for Form 2210 purposes.

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.

Form 2210 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.

Schedule AI is worth completing when most of your income arrived late in the year. For example, this may apply to a freelancer paid for a large project in November, a consultant whose foreign client paid an annual invoice in December, or a retiree who took a lump-sum distribution in the fourth quarter. These situations can make the standard installment method show larger underpayments in earlier periods, while Schedule AI may reduce or eliminate the penalty by matching required installments more closely to when the income was earned or received. It is generally not worth completing when income was roughly even throughout the year because the result may be similar to the standard method, while Schedule AI requires additional calculations.

For expats, a common trigger is a foreign employer or client with no U.S. withholding and a bonus, commission, or contract payment concentrated at year end. If that describes your year, check Box C in Part II for the annualized income installment method, complete Schedule AI, and carry the results to line 10 before figuring the 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 for 2025 Returns (Filed in 2026)

Expats who qualify for the automatic two-month extension generally have until June 15 to file their return. That extension does not change the estimated tax payment due dates or prevent an underpayment penalty from accruing. If you were required to make estimated tax payments during the year but did not make them on time, paying the balance with your return in June does not erase the earlier underpayments. Form 2210 calculates the penalty separately for each installment that was underpaid.

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 2025 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 section tells the IRS why you’re filing Form 2210. Check the box or boxes that apply to your situation:

• Box A: You’re requesting a waiver of your entire underpayment penalty.
• Box B: You’re requesting a waiver of part of your underpayment penalty.
• Box C: Your income varied during the year and your penalty is reduced or eliminated using the annualized income installment method. You must complete Schedule AI and file Form 2210.
• Box D: Your penalty is lower when federal income tax withholding is treated as paid on the dates it was actually withheld instead of in equal amounts on the payment due dates.
• Box E: You filed a joint return for either the current year or the prior year, but not both, and the prior-year tax calculation shown on Form 2210 is lower than the current-year amount.

If Box B, C, or D applies, you generally must calculate the penalty and file Form 2210.

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.

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

Get help with an underpayment penalty

If the IRS has already assessed the penalty and you believe it should be waived or reduced, Form 2210 is the first step, and it is not the only one. Our penalty abatement and IRS resolution services cover first-time abatement requests, reasonable cause statements, and disputes over how the penalty was figured. If you are not sure whether the form applies to you or how to complete Schedule AI, book a consultation and an enrolled agent will work through it with you.