|Tax Topic #306
||2008 Tax Year
Topic 306 - Penalty for Underpayment of Estimated Tax
The United States income tax is a pay-as-you-go tax, which means that tax
must be paid as you earn or receive your income during the year. You can either
do this through withholding or by making estimated tax payments. If you do
not pay enough tax, you may have to pay a penalty for underpayment of estimated
tax. Generally, most taxpayers will have paid enough tax to avoid this penalty
if they owe less than $1,000 in tax after subtracting their withholdings and
credits, or if they paid at least 90% of the tax for the current year, or
100% of the tax shown on the return for the prior year, whichever is smaller.
There are special rules for farmers and fishermen. Please refer to Publication 505, Tax Withholding and Estimated Tax, for additional
Generally, the payments should be made in four equal amounts to avoid a
penalty. However, if you made unequal payments because your income was received
unevenly during the year, you may be able to avoid or lower the penalty by
annualizing your income. Use Form 2210 (PDF), Underpayment
of Estimated Tax by Individuals, Estates, and Trusts, to see if you owe
a penalty for underpaying your estimated tax.
The penalty may be waived if:
- The failure to make estimated payments was caused by a casualty, disaster,
or other unusual circumstance and it would be inequitable to impose the penalty,
- You retired (after reaching age 62) or became disabled during the tax
year for which estimated payments were required to be made or in the preceding
tax year, and the underpayment was due to reasonable cause and not willful
Please refer to the Form 1040 Instructions or the Form 1040A Instructions for where to report the estimated tax penalty
on your return.
Page Last Reviewed or Updated: December 22, 2008
Previous | Index | Next
You can search for information in the entire Tax Prep Help section, or in the entire site. For a more focused search, put your search word(s) in quotes.
Tax Topic Categories | FAQ Categories | Tax Prep Help Main | Home