You may owe an underpayment penalty if you didn't pay enough federal income tax during the year through withholding, estimated tax payments, or a combination of both.
In many cases, a penalty may apply if you owe $1,000 or more when you file your federal tax return. You can also face a penalty if you were required to make quarterly estimated tax payments and didn't pay enough by the IRS due dates.
The good news? The IRS calculates this penalty using specific rules, and not everyone who owes tax at filing will be penalized.
How do I find out if I owe an underpayment penalty?
Use Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, to determine whether a penalty applies to your situation.
If you don't complete Form 2210 and a penalty is owed, the IRS will generally calculate the penalty for you and send you a notice showing the amount due.
What causes an underpayment penalty?
Common reasons include:
- Not having enough federal tax withheld from your paycheck
- Missing one or more required quarterly estimated tax payments
- Paying estimated taxes after the IRS due date
- Experiencing a significant increase in income during the year without adjusting withholding or estimated payments
Can I request a penalty waiver?
Yes. You may be able to request a waiver of the underpayment penalty if you had a reasonable cause for underpaying your taxes.
For example, the IRS may consider waiving the penalty in certain situations involving:
- Casualties, disasters, or other unusual circumstances
- Retirement during the tax year
- Disability during the tax year
- Other situations where assessing the penalty would be unfair
To request a waiver, complete Form 2210 and provide an explanation of why your taxes were underpaid.
Note: Approval of a waiver request is determined by the IRS.
How to Enter Form 2210 in the Program
To complete Form 2210 in the program, go to:
- Federal
- Payments and Estimates
- Underpayment of Estimated Tax
The program will guide you through the questions needed to determine whether an underpayment penalty applies and whether you qualify to request a waiver.