TABLE OF CONTENTS
- IRS Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, is a tax document that some taxpayers are required to file to determine if they owe a penalty for the underpayment of their estimated tax liability. Sometimes the IRS will calculate the tax penalty and the taxpayer will not be required to file Form 2210. However, if the taxpayer wants to determine if they owe penalties and include the underpayment penalty when they file their tax return or request a waiver for the penalty, they can use IRS Form 2210.
- There is a convenient flow chart on page one of IRS Form 2210 that allows taxpayers to input their tax information to determine whether they are required to file IRS Form 2210.
- The taxpayer may owe an underpayment tax penalty if their total withholding and timely estimated tax payments were less than the smaller of 90% of their tax for 2022, or 100% of their tax for 2021. This tax return for 2021 must cover a 12-month tax period, but there are special rules that apply to farmers and fishermen, high-income taxpayers, and household employers.
What Is IRS Form 2210?
IRS Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, is a tax document that some taxpayers are required to file to determine if they owe a penalty for the underpayment of their estimated tax liability. Sometimes the IRS will calculate the tax penalty and the taxpayer will not be required to file Form 2210.
However, if the taxpayer wants to determine if they owe penalties and include the underpayment penalty when they file their tax return or request a waiver for the penalty, they can use IRS Form 2210.
What Are Tax Underpayment Penalties?
The IRS may issue penalties to taxpayers who fail to make estimated tax payments each quarter of the tax year. To calculate how much taxpayers owe in underpayment penalties, the IRS will first figure out how much the taxpayer was supposed to pay during the tax quarters. The underpayment value is the difference between what the taxpayer paid (including if they previously overpaid) and what they should have paid. Once the IRS has found the underpayment value, they multiply this value by the underpayment rate for that quarter of the year.
In 2022, the underpayment penalty rates for each quarter are as follows:
Quarter 1 (January – March): 3%
Quarter 2 (April – June): 4%
Quarter 3 (July – September): 5%
Quarter 4 (October – December): 6%
Who Must File IRS Form 2210?
People may owe penalties to the IRS as a result of the underpayment of estimated tax liability throughout the tax year. If taxpayers are self-employed or have investment income that is not subject to withholding, they may owe penalties if they failed to make estimated tax payments or did not pay enough in estimated tax payments by the deadlines. Wage-earning employees may also be required to pay a tax penalty and file IRS Form 2210 if their employer did not withhold enough taxes from their paychecks.
There is a convenient flow chart on page one of IRS Form 2210 that allows taxpayers to determine whether they are required to file IRS Form 2210.
1. After completing lines 1 through 7 on IRS Form 2210, is line 4 or line 7 less than $1,000?
- If yes, the taxpayer is not required to file IRS Form 2210 because they do not owe a penalty.
- If not, continue to the second question.
2. After completing lines 8 and 9 on IRS Form 2210, is the value on line 6 equal to or greater than the value on line 9?
- If yes, the taxpayer does not owe a penalty and will not be required to file IRS Form 2210. However, if box E in Part II applies, the taxpayer must file the first page of IRS Form 2210.
- If not, continue to the third question.
3. Does any box in Part II of IRS Form 2210 apply to your tax situation?
- If yes, the taxpayer must file IRS Form 2210 and move on to question 4.
- If not, the taxpayer is not required to figure out their penalty using IRS Form 2210 because the IRS will calculate and send the taxpayer a bill for the unpaid amount. The taxpayer can use Part III of IRS Form 2210 to figure out their tax penalty, but they do not need to file the form with the IRS.
4. Does box B, C, or D in Part II of IRS Form 2210 apply to your tax situation?
- If yes, the taxpayer must figure out their tax penalty amount.
- If not, the taxpayer is not required to figure out their penalty using IRS Form 2210 because the IRS will send the taxpayer a statement of how much is owed. The taxpayer is able to use Part III of IRS Form 2210 to calculate how much they will owe for their tax penalty, but only the first page of the form must be filed.
Who Must Pay Underpayment Tax Penalties?
The general guideline for whether taxpayers owe the 2022 penalty is based on their withholding and estimated tax payments. The taxpayer may owe an underpayment tax penalty if their total withholding and timely estimated tax payments were less than the smaller of:
- 90% of their tax for 2022, or
- 100% of their tax for 2021. This tax return for 2021 must cover a 12-month tax period.
Special Rules For Certain Taxpayers
While most of the population will follow the general guidelines for underpayment penalties, certain groups of individuals have special rules with associated tax penalty rates.
- Farmers and Fishermen
Qualifying taxpayers who have earned at least two-thirds of their gross income from farming or fishing can substitute the 90% tax rate from above with 66.67%.
- High-Income Taxpayers
Taxpayers whose adjusted gross income (AGI) as found on line 11 of IRS Form 1040 for the 2021 tax year was more than $150,000 for those with a joint filing status or $75,000 for married filers who file separately may substitute 110% for 100% from the tax rate above.
- Household Employers
If taxpayers report the wages that were paid to a household employee by filing Schedule H with their income tax return, they may not have to include household employment tax in the calculation of their underpayment penalty.
Household employers may qualify for this special rule if federal income taxes are not withheld from their income, such as wages, annuities, pensions, or gambling winnings. Additionally, to qualify for this special rule, even if household employment taxes were not included in the taxpayer’s estimated tax calculation, they wouldn’t be required to make estimated tax payments to avoid a penalty.
What Happens If The IRS Figures The Tax Penalty?
After filling out the flow chart on page one of IRS Form 2210, if the taxpayer did not check box B, C, or D in Part II, the IRS will figure out the penalty for the taxpayer’s underpayment of estimated tax and will send them a bill in the mail. This bill will inform the individual about exactly how much they owe in taxes and penalties while providing instructions on how to resolve the tax liability.
If the individual files their federal income tax return along with the payment of their tax bill by the due date of April 17, 2023, the taxpayer will only be required to pay the penalty and will not be charged any interest on the penalty. If the taxpayer completes their tax return as usual and does not input a value on the penalty line, the IRS will calculate the penalty for them and the taxpayer will not need to file IRS Form 2210.
Who Qualifies To Have Their Tax Penalty For Underpayment Waived?
There are certain circumstances in which taxpayers may be approved for an exemption and can have their underpayment penalty waived.
If taxpayers are 62 years old or above and are retired or disabled, it could be considered a reasonable cause to have the penalty waived. An example of a taxpayer who may qualify to have the penalty waived in this circumstance includes experiencing financial hardship or losing mental or physical control.
Taxpayers may also be eligible to have their underpayment penalty waived if they experience an unusual event that is beyond their control, preventing them from making estimated quarterly tax payments. Qualifying circumstances for an underpayment penalty waiver may include a serious illness, a natural disaster causing damage to their home, or a domestic violence situation.
In the case of a federally declared disaster in the area where the taxpayer lives, they will automatically qualify for an underpayment penalty waiver.
Information Included On IRS Form 2210
When filling out IRS Form 2210, the taxpayer must include all of their personal identification information, including their full name, Social Security Number, income details, and previous tax information. The taxpayer must also include any tax credits or deductions they claim on their tax returns, such as the child tax credit, dependent care expenses credit, or a premium tax credit advanced to their insurance provider.
If you have any questions about tax penalties, IRS Form 2210, or filing your income tax return this tax season, the tax professionals at Ideal Tax are here to help. See how you can maximize your tax refund today.