Taxes are pay-as-you-go. This means that you need to pay most of your tax during the year, as you receive income, rather than paying at the end of the year. The Underpayment of Estimated Tax by Individuals Penalty applies to individuals, estates and trust that don't pay enough estimated tax on their income or you pay it late. There are two ways to pay tax: Withholding from your pay, your pension or certain government payments, such as Social Security. Making quarterly estimated tax payments during the year. Estimated tax payments are generally due as follows: Jan. 1 to March 31–April 15 April 1 to May 31–June 15 June 1 to Aug. 31-Sept. 15 Sept. 1 to Dec. 31–Jan. 15 of the following year How you know you owe the penalty We send you a notice if you owe the Underpayment of Estimated Tax by Individuals Penalty. For more information, see Understanding Your IRS Notice or Letter. How we calculate the penalty We calculate the amount of the Underpayment of Estimated Tax by Individuals Penalty based on the tax shown on your original return or on a more recent return that you filed on or before the due date. The tax shown on the return is your total tax minus your total refundable credits. We calculate the penalty based on: The amount of the underpayment The period when the underpayment was due and underpaid The published quarterly interest rates for underpayments Interest on a penalty We charge interest on penalties. The date from which we begin to charge interest varies by the type of penalty. Interest increases the amount you owe until you pay your balance in full. For more information about the interest we charge on penalties, see Interest. Pay a penalty Make a payment in full on time to stop future penalties and interest from adding up. You can create or access your IRS account to view your balance owed, make and view payments (including estimated payments), create payment plans, and view tax records including downloadable transcripts and key data from your most recently filed tax return. Remove or reduce a penalty We understand that circumstances—such as a serious illness or injury, a family member's death, or similar circumstance beyond your control—may make it difficult for you to meet your estimated tax payment obligation in a timely manner. While the penalty for underpayment of estimated tax generally cannot be waived due to reasonable cause, the penalty may be removed or reduced if the underpayment is the result of a casualty, local disaster, or other unusual circumstance when it would not be fair to impose the penalty. If you think you qualify for a waiver of the penalty as explained above, please send your written explanation, signed under penalty of perjury, to us at the address at the top of your notice. Additionally, we may reduce a penalty if any of the following apply: You or your spouse (if you file a joint return) retired in the past 2 years after reaching age 62 or became disabled and you had reasonable cause to underpay or pay your estimated tax late. See Waiver of Penalty in Instructions for Form 2210 PDF. You had most of your income tax withheld early in the year instead of spreading it equally through the year. Complete Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts PDF. Your income varies during the year. Complete Form 2210, Schedule AI, Annualized Income Installment Method PDF (found within the form). If you think you qualify for a waiver of the penalty under any provision explained above, please send your written explanation, signed under penalty of perjury, to us at the address at the top of this notice. Dispute a penalty If you don't qualify for penalty removal or reduction we may consider making an adjustment if we imposed the penalty after you relied on incorrect written advice we gave you. Check if you meet the following criteria: The written advice we gave you was in direct response to your written request for advice The incorrect written advice we gave you was not the result of material omissions or misinformation in your written request for advice You reasonably relied on our written advice and were penalized based on that advice If you believe you meet the criteria, mail a statement signed under penalty of perjury that describes how our erroneous written advice resulted in the penalty. Include a copy of both the written request for advice you sent us and our written response. Mail the original statement and copies of the supporting documents to the address on your penalty notice. Keep a copy of the documents you send to us. When you sign a statement under penalty of perjury, you may be found guilty of a crime if you knowingly lie in your statement. Avoid a penalty You may avoid the Underpayment of Estimated Tax by Individuals Penalty if: Your filed tax return shows you owe less than $1,000 or You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less. If your adjusted gross income (AGI) for 2023 was more than $150,000 ($75,000 if your filing status for 2024 is married filing separately), substitute 110% for 100%. The IRS urges taxpayers to check into their options to avoid these penalties. Check your withholding often and adjust it when your situation changes. To do this fill out a new Form W-4 and give it to your employer. The Tax Withholding Estimator is a helpful tool. Estimated tax is the method used to pay tax on income that is not subject to withholding (for example, earnings from self-employment, interest, dividends, rents, alimony, etc.). Use Form 1040-ES to figure and pay estimated taxes on time. Special rules for farmers and fishers Individuals, estates, and trusts with at least two-thirds of their gross annual income from farming or fishing in either the current or preceding tax year, complete Form 2210-F, Underpayment of Estimated Tax by Farmers and Fishermen to see if you owe a penalty for underpaying estimated tax. Qualifying farmers and fishers can an avoid making any estimated tax payments by filing and paying their entire tax due on or before March 1. Those who choose not to file by March 1 should make an estimated tax payment by Jan. 15 to avoid an estimated tax penalty. The required annual payment is the smaller of: two-thirds (66.67%) of their tax, or 100% of the tax shown on the tax return for the prior year, whichever amount is less. Apply for a payment plan If you can't pay the full amount of your taxes on time, pay what you can now and apply for a payment plan. You may reduce future penalties when you set up a payment plan. Get help For help with a penalty, call the phone number on your notice or letter. If you didn't receive a letter or notice, use telephone assistance. Law and regulations Failure by an Individual to Pay Estimated Income Tax — Internal Revenue Code § 6654 Additions to Tax for an Individual — Estimated Tax — 26 Code of Federal Regulations § 1.6654-1 Exceptions to the Imposition of Penalties for Underpayment of Estimated Tax — Individuals — 26 Code of Federal Regulations § 1.6654-2 Related IRS operations status Estimated taxes Pay as you go, so you won't owe: A guide to withholding, estimated taxes and ways to avoid the estimated tax penalty Gig economy tax center Self-employed individuals tax center Taxpayer Bill of Rights Publications Publication 505, Tax Withholding and Estimated Tax Publication 1, Your Rights as a Taxpayer PDF Need help? You can authorize someone to contact the IRS on your behalf. See if you qualify for help from a Low Income Taxpayer Clinic. If you can’t find what you need online, call the IRS number at the top of your notice or letter. If you didn’t receive a letter or notice, use telephone assistance. If you can't resolve the penalty on your own, contact Taxpayer Advocate Service, an independent organization within IRS.
