Who owes estimated tax
IRC 6654 applies to individuals, estates and trusts (other than charitable trusts). Estimated payments are required if the tax that will be shown on the return, minus withholding, is $1,000 or more (IRM 20.1.3.3). “Tax shown on the return” is total tax less refundable credits, with specific exclusions; it includes the net investment income tax and, to the extent not withheld, the additional Medicare tax (IRM 20.1.3.3.1.7).
The IRS normally computes the penalty and bills it. The Form 2210 instructions say that if box B, C or D in Part II applies, the taxpayer must figure the penalty and attach the form; otherwise the IRS will figure it and send a bill.
The required annual payment
A taxpayer avoids the penalty by paying, generally in four equal installments, at least the required annual payment, which is the lesser of:
| Test | Rule |
|---|---|
| Current year | 90% of the tax shown on the current year's return (66 2/3% for qualifying farmers and fishers) |
| Prior year | 100% of the tax shown on the preceding year's return, which must cover 12 months |
| Prior year, higher income | 110% of prior year tax if prior-year AGI exceeded $150,000 ($75,000 married filing separately) |
Sources: IRM 20.1.3.3.1.1; 2025 Form 2210 instructions. “Preceding taxable year’s tax” means the tax on the original return, or on an amended return filed before that year's due date including extensions. The IRM's discussion of filing status changes and short years covers the cases where the prior-year test cannot be used.
Annualized income method. A client whose income arrives unevenly can lower early installments by annualizing on Schedule AI of Form 2210. Pass-through income must be allocated to the annualization periods even though the K-1 arrives after year end: the failure of an entity to report the share by period “does not permit the taxpayer to simply allocate the entire amount to the final annualization period” (IRM 20.1.3.2.7.5).
Installment dates and how payments apply
For a calendar-year filer the installments are due April 15, June 15 and September 15 of the tax year and January 15 of the next year (IRM 20.1.3.3.1.3). The January installment is not required if the return is filed and the tax paid by the last day of the first month after year end. Qualifying farmers and fishers make one installment, due January 15, or none if they file and pay by the date in the instructions (for 2025 returns, March 2, 2026).
Payments apply to the earliest unpaid installment first (IRC 6654(b)(3)). Withholding is treated as paid in equal parts on each due date unless the taxpayer elects to use the actual withholding dates, which requires attaching Form 2210 (IRM 20.1.3.3.1.4). The default equal-allocation rule is what makes extra withholding late in the year useful: without the election, December withholding is treated as paid in equal parts on each installment date.
How the penalty is computed
The penalty is the IRC 6621 underpayment rate applied to each installment's underpayment for the days it was unpaid. The IRM is specific: “Although the estimated tax penalty is not interest, it is computed in the same manner as interest, except it is NOT compounded daily” (IRM 20.1.3.3.1.6). Each underpayment period runs from the installment due date to the earlier of payment or the 15th day of the 4th month after year end (IRM 20.1.3.3.1.2). Each installment is computed separately, so “you may owe the penalty for an earlier due date even if you paid enough tax later to make up the underpayment”, even with a refund due (Form 2210 instructions).
| Period | Underpayment rate |
|---|---|
| 2025 rate periods on the 2025 Form 2210 worksheet (4/16/2025 to 4/15/2026) | 7% in each period |
| January to March 2026 | 7% |
| April to June 2026 | 6% |
| July to September 2026 | 7% |
| October to December 2026 | 7% |
Sources: 2025 Instructions for Form 2210, Worksheet for Part III, Section B; IRS quarterly interest rates page (4th quarter 2026 rates, IRB 2026-36). The rate in effect for the 3rd month after year end also applies to the first 15 days of the 4th month (IRM 20.1.3.3.1.6). The penalty is based on the tax shown on the original return or a superseding return filed by the due date; an amended return filed after the due date does not change it (IRM 20.1.3.3.1.7; Form 2210 instructions). See the interest rate table.
Exceptions
- No prior-year liability. No penalty if the taxpayer had no tax liability for a 12-month preceding year and was a U.S. citizen or resident throughout it (IRC 6654(e)(2)). The IRM says this exception applies even if the prior-year return originally showed tax that was later reduced to zero or below, and that Master File cannot detect it after the fact, so the penalty has to be abated manually.
- Under $1,000. Tax shown minus withholding is less than $1,000 (IRC 6654(e)(1); Form 2210 instructions).
- Decedents' estates and certain grantor trusts. No penalty for tax years ending before 2 years after the decedent's death (Form 2210 instructions).
- Disasters. Postponed deadlines in federally declared disaster areas are applied automatically during processing (Form 2210 instructions; IRM 20.1.3.2.7.1). See disaster postponements.
- Bankruptcy. IRC 6658 bars the penalty in the situations described in IRM 20.1.3.2.7.3.
The two waivers
IRM 20.1.3.2.7.1 sets the baseline: “The penalty for underpayment of estimated tax cannot be removed or waived for reasonable cause alone.” Relief beyond the exceptions comes only from IRC 6654(e)(3). (For penalties where the general standard does apply, see reasonable cause.)
| Waiver | Conditions | IRM examples and limits |
|---|---|---|
| Casualty, disaster or unusual circumstances, IRC 6654(e)(3)(A) | The failure was due to casualty, disaster or other unusual circumstances, and imposing the penalty would be against equity and good conscience | Granted for records destroyed by fire or flood, serious illness or injury leaving the taxpayer unable to manage their affairs, an overpayment credit-elect offset for child support or federal debt without timely notice. Not granted for reliance on a tax advisor, lack of funds, retroactive law changes without a specific waiver, or a foreseeable event such as scheduled surgery. |
| Retirement or disability, IRC 6654(e)(3)(B) | In the current or preceding tax year the taxpayer retired after reaching age 62 or became disabled, and the underpayment was due to reasonable cause and not willful neglect | Reasonable cause is considered only for clients who meet the age or disability condition, and only to decide eligibility for this waiver (IRM 20.1.3.3.2.1.3). |
For (3)(A), the IRM says the waiver provisions “are not equivalent to reasonable cause” and that “A recurring circumstance is not an unusual circumstance.” Post-event conduct matters: a taxpayer whose house burned and who used funds for basic living expenses would normally qualify, but not one who spent on luxury items or failed to catch up after the insurance settlement (IRM 20.1.3.3.2.1.2). Erroneous IRS advice supports a waiver only within IRC 6404(f) and Treas. Reg. 301.6404-3; see erroneous IRS advice.
Requesting a waiver
- Check box A (full waiver) or box B (partial waiver) in Part II of Form 2210. With box A, complete only page 1. With box B, complete the form through line 18, show the amount to be waived in parentheses next to line 19, and enter the net penalty.
- Attach a statement explaining why the client could not meet the estimated tax requirements and the period covered.
- For retirement or disability, attach documents showing the retirement date and age on that date, or the date of disability. For a casualty or unusual circumstance, attach documents such as police and insurance reports.
- Have the taxpayer sign. IRM 20.1.3.3.2.1.2 says (3)(A) waiver requests must be in writing and signed, may not be granted on an oral request, and must be approved by a manager or designee.
Source: 2025 Instructions for Form 2210, Waiver of Penalty. Form 2210 can be filed with the return or after the IRS bills the penalty (IRM 20.1.3.3.1.7.1). A request that only asks the IRS to verify its computation does not need to be in writing, even if it produces an abatement (IRM 20.1.3.3.2.1).
After assessment
The penalty is assessed without a notice of deficiency for the portion not attributable to a deficiency (IRM 20.1.1.4.2) and needs no supervisory approval (IRC 6751(b)(2)). Because it is based on the original return and actual payment dates, it is recomputed when withholding, payments or credits change, and must be recomputed manually after a superseding return or a joint return replacing separate returns. A waiver denial comes on Letter 854C with appeal rights (IRM 20.1.3.2.8); see appealing a denial. A paid penalty can be recovered only through a timely claim; see refund claims for paid penalties. Errors the IRM addresses include an overpayment credit or estimated payment refunded in error (IRM 20.1.3.2.7.4), a prior-year return later reduced to zero tax (IRM 20.1.3.3.1), and changes to withholding or payment dates. First Time Abate does not apply; see First Time Abate.
Questions practitioners ask
Can reasonable cause remove the estimated tax penalty?
Not by itself. IRM 20.1.3.2.7.1 says the penalty cannot be removed or waived for reasonable cause alone. Reasonable cause matters only for a taxpayer who retired after 62 or became disabled in the current or prior year, under IRC 6654(e)(3)(B).
Does reliance on a preparer support a waiver?
No. IRM 20.1.3.3.2.1.2 lists reliance on the advice of a competent tax advisor among the reasons the casualty and unusual circumstances waiver may not be granted.
What is the safe harbor for a client with prior-year AGI over $150,000?
110 percent of the prior year's tax, or 90 percent of the current year's tax if lower. The threshold is $75,000 for married filing separately, per IRM 20.1.3.3.1.1 and the Form 2210 instructions.
Does a large April payment fix underpaid earlier installments?
No. Each installment's penalty is computed separately from its due date until paid, and payments apply to the earliest installment first, so a late payment stops the penalty only from the date it is made.
Does an amended return change the penalty?
Only a superseding return filed by the due date, including extensions. An amended return filed after the due date does not change the tax used for the penalty, per IRM 20.1.3.3.1.7 and the Form 2210 instructions.
What rate applies in 2026?
The IRC 6621 underpayment rate: 7 percent for January to March, 6 percent for April to June, and 7 percent for July to September and October to December 2026, per the IRS quarterly interest rate table.