Why is there an underpayment penalty on my tax bill?

What the penalty is

The underpayment penalty is figured on Form 2210. It works like interest: it's based on how much you were short for each quarter and for how long. The tax itself is the large number on your bill, and the penalty is usually the small one beside it.

That's one reason people ask why they owe so much in taxes after a year with no estimated payments. Most of the bill is the tax that wasn't paid in, and the penalty is a smaller charge on top.

How to avoid it

You usually owe no underpayment penalty if any one of these is true:

• You owe less than $1,000 after your withholding and refundable credits.
• Your withholding and estimated payments were at least 90% of this year's tax.
• They were at least 100% of last year's tax. If last year's adjusted gross income was over $150,000 ($75,000 if married filing separately), use 110% instead.

The 90% and 100% tests work as "whichever is smaller," so you only need to meet one.

The IRS can also waive the penalty in two situations: when a casualty, disaster or other unusual event kept you from paying, or when you retired after age 62 or became disabled and had a reasonable cause.

Sources: IRS Topic 306 (penalty for underpayment of estimated tax) and the 2026 Form 1040-ES. Checked 26 October 2026.

Two ways to pick next year's payment

Last year's tax is a number you already know from a return you filed. Paying 100% of it (or 110%) across the four dates is the simplest way to stay safe while your income is still changing.

This year's expected tax fits when your income dropped. Paying 90% of what you expect to owe can be less than last year's amount, so you keep more cash during the year.

Compare the two and use the smaller one. On the call, we work out both with you.

Tips that lower or remove the penalty

• Withholding counts as paid evenly through the year. So if you're behind, raising your paycheck withholding late in the year can still cover the earlier quarters. Extra estimated payments only count from the day you send them.
• If most of your income came late in the year, Form 2210 has an annualized income method that may lower the penalty.
• Pay a missed quarter as soon as you can. The penalty grows with time, so catching up early keeps it smaller.

Questions about the underpayment penalty

What are the estimated tax dates?

For 2026, April 15, June 15 and September 15, 2026, and January 15, 2027. Check the Form 1040-ES for the year you're paying, because a date can shift when it falls on a weekend.

Does owing under $1,000 remove the penalty?

Yes, generally. If you owe less than $1,000 after withholding and refundable credits, there's usually no penalty. You still owe the tax, of course.

What if I paid some quarters and skipped others?

The penalty is figured quarter by quarter, so the quarters you paid help. Paying the missed amount now stops the penalty from growing on it.

How do I pay estimated tax?

Online through your IRS account, IRS Direct Pay or EFTPS, or by mail with the Form 1040-ES voucher. Keep a record of each payment, with its date and amount, for next year's return.

Set up next year's payments with us

Send a short note, and we'll set up a free 30-minute call to work out the four payments, or the W-4 change, that keeps the penalty off next year.

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