Do I owe a penalty for underpaying my taxes?

If you owe $1,000 or more in federal income taxes, you could be subject to a penalty for underpaying.  In the U.S., federal taxes are due on a pay-as-you-go basis. Withholding sufficient taxes from each paycheck keeps W-2 employees current on their tax obligations. If too little tax is withheld, then you may owe additional tax at the end of the year.

Taxpayers with other types of income may not have enough – or any – tax withheld from income as it is received. Unless you make estimated tax payments, you will likely wind up owing additional tax at the end of the year.

If the amount of additional tax owed is $1,000 or more, underpayment penalties will apply as well unless one of the following is true:

Timeliness is critical for estimate tax payments

If you were required to make quarterly estimated tax payments, a separate penalty may apply for each payment that you did not make by the due date.

Estates and trusts will not owe a penalty for underpayment if all tax due is paid the same year in which the estate owner's death occurred or before the end of the next tax year. 

Complete Form 2210 to determine if you owe a penalty for underpaying your taxes. Most people do not have to file this form; you can simply use it to find out if you will owe a penalty and the IRS will calculate the amount. If you prefer, you can use Form 2210 to figure out how much your underpayment penalty will be and enter that amount on your tax return. If you do not complete Form 2210 and owe a penalty, the IRS will figure the penalty for you and send you a bill.

Exception: If you checked box B, C or D in Part II of Form 2210, then you must use the form to figure out your underpayment penalty yourself and include the form with your tax return.

You can also use Form 2210 to request a waiver of the underpayment penalty in certain situations.

What is an Installment Agreement?

An installment agreement with the IRS is a payment plan that allows you to pay federal taxes over time. If you need more time to pay your federal taxes, you can set up an installment agreement to make monthly payments. You can create an agreement for taxes that are due with your tax return or for taxes that the IRS sends you a notice about.

You can file Form 9465 to request an installment agreement or complete your application through When you complete the Installment Agreement application, you can set up your monthly payment amounts and banking information (or arrange to pay by mail) along with the monthly payment dates. You can also complete the application online using the Online Payment Agreement application on the IRS website.

You will have to pay a setup fee for initiating your installment agreement. The amount of the setup fee varies based on your income, what method you use to set up the plan and how you will make payments.

Whether your installment plan utilizes Direct Debit or another form of payment, you will continue to accrue any penalties and interest that may apply to the outstanding balance of tax owed.

If you can pay the full amount that is due within 120 days, you can make a short-term payment plan instead of an installment plan. With this type of payment plan you will not have to pay a setup fee, but penalties and interest that apply to tax you owe will continue to accrue for the amount that remains outstanding. You can set up a short-term payment plan online using the Online Payment Plan application.

Important: Do not file Form 9645 if you are paying the full amount of tax due within 120 days, or if you are applying online for a payment plan.