What is the estimated tax underpayment penalty is not a static percentage or flat dollar amount.
Here’s what will happen and how your late estimated tax penalty will be calculated. The IRS will send a notice if you underpaid estimated taxes. They determine the penalty by calculating the amount based on the taxes accrued (total tax minus refundable tax credits) on your original return or a more recent one you filed.
Specifically, the IRS calculation for the penalty is based on the:
- Total underpayment amount
- Period when the underpayment was underpaid
- Interest rate for underpayments (This number changes each quarter. View the IRS’ Interest on Underpayments and Overpayments page for specific numbers.)
Form 2210 (or Form 2220 for corporations) will help you determine the penalty amount. You should figure out the amount of tax you have underpaid. This form contains both a short and regular method for determining your penalty.
To calculate the penalty yourself (other than corporations):
You can let the IRS figure your penalty if:
- You didn’t withhold enough tax by the end of the year.
- You aren’t required to file Form 2210 (box B, C, or D in Part II doesn’t apply to you).
