Having DISIMILAR QUARTERLY INCOMES may cause underpayment of taxes on one or more of the quarterly periods leading to underpayment penalties. THE ANNUALIZED INCOME INSTALLMENT METHOD recalculates estimated tax payment installments so it better relates to when the taxpayer earned the money in the year. Its purpose is to limit both the underpayment and its corresponding underpayment penalty associated with uneven payments when a taxpayer's income varies throughout the year.
Having taxes withheld from a W-2 or a 1099 form is another way to reduce the underpayment of penalties because payments made in this manner are considered evenly paid throughout the tax year regardless on when the payments were made within the tax year in question.
Finally, the form used for the above calculations is IRS FORM 2210
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