IRS Underpayment Penalty: How Form 2210 Works and How to Avoid It

The underpayment penalty is the IRS charge for estimated tax that arrived late or short. The Code calls it an addition to tax, under IRC 6654 for individuals and IRC 6655 for corporations, and it behaves like interest: a rate, applied to a shortfall, for a number of days. Below: how the IRS figures it, the 2026 rates, a worked example, the exceptions and waivers, when to file Form 2210 and when to leave it alone, and the corporate version on Form 2220. The smallest payment that avoids the penalty is covered in the estimated tax safe harbor, and the calendar in estimated tax due dates.

How the IRS figures the underpayment penalty

Three inputs drive it, all set by statute (IRC 6654(a)): the underpayment rate, the amount of the underpayment, and the period it stays unpaid.

• Amount, one installment at a time. Each shortfall is the required installment minus what was paid by its due date (IRC 6654(b)(1)), and each of the four installments is tested on its own. The Form 2210 instructions say you may owe the penalty for an earlier due date even if you paid enough later to make up the shortfall, and even if you are due a refund.
• Period, one day at a time. The clock runs from the due date until the shortfall is paid, and never past the 15th day of the 4th month after the year ends, April 15, 2027 for a 2026 calendar year (IRC 6654(b)(2)). The Form 2210 worksheet divides the days by 365; its own example counts a payment due June 15 and made November 4 as 142 days late.
• Oldest installment first. Every payment goes to the earliest unpaid installment (IRC 6654(b)(3)), “even if you designate a payment for a later period,” in the words of the Form 2210 instructions. A catch-up payment cures the oldest shortfall and can leave the next one open.
• Withholding spreads itself. Income tax withheld during the year counts as paid in equal parts on the four due dates unless you show the actual dates (IRC 6654(g)); box D of Form 2210 is where you show them.

The underpayment rate for 2026

The rate is the federal short-term rate plus 3 percentage points, rounded to a whole percent and reset every calendar quarter (IRC 6621(a)(2) and (b)). The IRS announces each quarter's rate in a revenue ruling, and IRC 6654(a) applies that rate to estimated tax shortfalls:

The first 2026 installment is due April 15, so the January to March rate never touches a 2026 installment; it applies to 2025 shortfalls still open in early 2026. For 2025, every rate period on the Form 2210 worksheet uses 7%, including April 1 to 15, 2026, because the rate for the third month after the year also covers the first 15 days of the fourth month for individuals (IRC 6621(b)(2)(B)). The same rule means 2026 shortfalls still open on January 1, 2027 run at the first-quarter 2027 rate through April 15, 2027, and the IRS had not announced that rate when this page was checked.

Laid out the way Table 2 of the 2025 Form 2210 instructions lays out its year, here are the days an installment accrues in each rate period if it stays unpaid through the whole period:

In dollars: $1,000 left unpaid from April 15 through December 31, 2026 accrues $47.78 (76 days at 6% plus 184 days at 7%, over 365), and the 2027 days come on top at whatever rate the IRS sets.

Worked illustration: three late installments in 2026

The June payment was meant for June, but the law hands it to April, so June goes unpaid until September and September until December. One missed installment turns into three late ones: $10,000 × 6% × 61 ÷ 365 = $100.27 for April; $10,000 × (6% × 15 + 7% × 77) ÷ 365 = $172.33 for June; $10,000 × 7% × 91 ÷ 365 = $174.52 for September. The same $40,000 paid in four equal amounts on the due dates would have cost nothing. Paying the whole year by April 15 also works; Form 1040-ES (2026) allows it.

When there is no penalty at all

• Under $1,000. Your tax for the year minus withholding is less than $1,000 (IRC 6654(e)(1)). Form 2210 stops at line 4 or line 7 when either is under $1,000.
• No tax last year. The prior year was a full 12 months, you had no liability for it, and you were a U.S. citizen or resident for all of it (IRC 6654(e)(2)).
• The safe harbor was paid on time. Withholding and timely estimates reached, installment by installment, the smaller of 90% of this year's tax or 100% of last year's (110% after a year with AGI over $150,000).
• The fourth installment only. You filed the 2026 return and paid it in full by February 1, 2027 (IRC 6654(h); Form 1040-ES (2026)).
• Farmers and fishers. At least two-thirds of gross income came from farming or fishing and the whole tax was filed and paid by the March deadline, which was March 2, 2026 for 2025 returns (Form 2210 instructions).

Waivers: casualty, disaster, retirement and disability

The IRS can waive the penalty in two situations written into the statute (IRC 6654(e)(3)): a casualty, disaster or other unusual circumstance that would make the penalty “against equity and good conscience,” and retirement after age 62 or a disability in the tax year or the year before, when the shortfall was due to reasonable cause and not willful neglect. Outside those, the IRS penalty page says the estimated tax penalty “generally cannot be waived due to reasonable cause.” To ask, per the Form 2210 instructions:

1. Check box A in Part II for the whole penalty (then only page 1 is needed) or box B for part of it (figure the full penalty, show the waived amount in parentheses next to line 19 and subtract it).
2. Attach a statement explaining why you could not meet the requirements and the period the request covers.
3. For retirement or disability, attach proof of the retirement date and your age on that date, or of the date you became disabled.
4. For a casualty, disaster or other unusual circumstance, attach documents such as police and insurance company reports.

Federally declared disasters work differently: the IRS identifies taxpayers in the covered counties while it processes returns and applies the relief itself, so the instructions say generally not to file Form 2210 for that reason. If a bill has already arrived, the IRS penalty page asks for a written explanation, signed under penalty of perjury, sent to the address on the notice. It also describes relief when the IRS itself gave incorrect written advice in response to a written request and you relied on it.

Form 2210: file it, or let the IRS send the bill

The default is not to file. The Form 2210 instructions say the IRS will generally figure the penalty and “you should not file Form 2210.” You complete your return as usual, leave the estimated tax penalty line (line 38 of the 2025 Form 1040) blank, and the IRS sends a bill. One notice you may see is the CP30, which the IRS uses to say it charged this penalty. For 2025 returns filed by April 15, 2026, no interest is charged on the penalty if it is paid by the date on the bill. You can also work the penalty out yourself and enter it on line 38 without attaching the form. The form becomes mandatory when a box in Part II applies:

Line 8: the prior-year figure

Line 8 holds the prior-year side of the safe harbor. For the 2025 form, you add the 2024 taxes the instructions list and subtract the refundable credits they list, then enter 110% of the result if 2024 AGI was over $150,000 ($75,000 if married filing separately for 2025). Filing status changes are handled here too: a 2025 joint return after separate 2024 returns uses both spouses' 2024 tax added together, and a 2025 separate return after a 2024 joint return uses your share of the joint tax. If you filed no 2024 return, or it covered less than 12 months, line 8 stays blank and line 9 takes the 90% figure from line 5.

Box D: when withholding came early

Box D helps the owner whose withholding bunched up early in the year, for example tax withheld from a large bonus paid in January. Spread evenly, that withholding would count only one quarter toward April 15; at its actual dates, all of it counts by April 15. The IRS penalty page lists this as a reason the penalty may be reduced, and Form 2210 must then be completed and attached.

Schedule AI in one paragraph

Schedule AI, page 3 of Form 2210, replaces the four equal installments with installments tied to the income actually earned: it annualizes income for the periods ending March 31, May 31, August 31 and December 31, figures the tax on it, and takes 22.5%, 45%, 67.5% and 90% of that tax, less earlier installments. Each required installment becomes the smaller of that result or the regular installment, and any reduction is added back to the next regular installment (IRC 6654(d)(2)). Check box C and attach it; Form 1040-ES (2026) says to file Form 2210 with Schedule AI even when no penalty is owed. A worked Schedule AI example is in quarterly estimated taxes.

Corporations: Form 2220

Corporations face the same structure under IRC 6655 with different numbers. No penalty applies when the tax shown is under $500 (IRC 6655(f)). The required payment is the smaller of 100% of the current year's tax or 100% of the prior year's, and a large corporation can use the prior year only for its first installment. What changes on the paperwork:

• The IRS figures it. A corporation generally does not file Form 2220; the IRS computes the penalty and notifies it. The exceptions are a corporation using the annualized income or adjusted seasonal installment method, or a large corporation basing its first installment on the prior year. It then attaches Form 2220 even if no penalty is owed and checks the box on line 34 of Form 1120 (Instructions for Form 2220).
• The clock stops earlier for some. The penalty period ends at the 15th day of the 4th month after year end for most C corporations, and the 3rd month for S corporations and for C corporations with years ending June 30 (Form 2220, line 19; IRC 6655(g)(4)(E)).
• Same rate, not the large corporate rate. Form 2220 applies the regular underpayment rate quarter by quarter: on the 2025 form, 7% for each period through March 31, 2026, then the second-quarter 2026 rate of 6% for April 1 to 15 on a calendar-year return. The rule that carries the March rate into April applies only to individuals. The higher large corporate rate in IRC 6621(c), 9% for the fourth quarter of 2026, governs interest on large corporate underpayments, not this penalty.
• No reasonable-cause adjustment. The IRS corporate penalty page says it cannot adjust the penalty for reasonable cause. It lists narrower fixes: tax under $500, cancelled checks or other records proving the dates and amounts paid, and a consolidated group member figuring its first installment on the prior year.
• Reporting. A completed penalty goes on line 34 of Form 1120 (Instructions for Form 1120). An amended return filed by the original due date, including extensions, counts as the original return for Form 2220 purposes.

Not the same as the failure-to-pay penalty

The estimated tax penalty covers the months before the return is due. A balance still unpaid after the return due date draws a different charge: the failure-to-pay penalty of 0.5% of the unpaid tax for each month or part of a month, capped at 25% (IRC 6651(a)(2); IRS failure to pay penalty page). Unlike the estimated tax penalty, that one has a general reasonable-cause exception written into the statute. One year can carry both, plus interest on the unpaid amounts.

Sources: 26 U.S.C. 6654, failure by individual to pay estimated income tax; 26 U.S.C. 6655, failure by corporation to pay estimated income tax; 26 U.S.C. 6621, determination of rate of interest; 26 U.S.C. 6651, failure to file tax return or to pay tax; IRS, Rev. Rul. 2026-5, Internal Revenue Bulletin 2026-8 (second quarter 2026 rates); IRS, Rev. Rul. 2026-10, Internal Revenue Bulletin 2026-22 (third quarter 2026 rates); IRS, IR-2026-98, interest rates remain the same for the fourth quarter of 2026; IRS, Quarterly interest rates (reviewed September 10, 2026); IRS, Form 2210 (2025), including Schedule AI; IRS, Instructions for Form 2210 (2025); IRS, Form 2220 (2025); IRS, Instructions for Form 2220 (2025); IRS, Instructions for Form 1120 (2025); IRS, Form 1040 (2025); IRS, Form 1040-ES (2026); IRS, Underpayment of estimated tax by individuals penalty (reviewed August 20, 2026); IRS, Underpayment of estimated tax by corporations penalty (reviewed November 4, 2025); IRS, Understanding your CP30 notice (reviewed July 17, 2026); IRS, Failure to pay penalty (reviewed June 5, 2026). Rates, forms and rules checked against these sources in September 2026; penalty math run in Python. This is general information, not tax advice for your situation. Tax services are provided by licensed tax professionals under a separate engagement agreement. BEG does not provide tax advice.