# Estimated tax penalty: how the IRS figures the underpayment penalty for 2026 and how to reduce it

Source: https://taxbracketsdesk.com/estimated-taxes/estimated-tax-penalty
Publisher: Tax Brackets Desk (taxbracketsdesk.com), independent editorial site
Topic: Estimated Taxes
Last updated: 2026-10-20

> The estimated tax penalty is the IRS charge for paying quarterly tax too late or too little. It works like interest: each short installment is charged the IRS underpayment rate, 6% to 7% a year in 2026, for every day it stays unpaid, up to April 15, 2027 for tax year 2026. It can apply even if you get a refund, and most people never file Form 2210: the IRS figures the penalty and mails a bill.

## Key facts

- 2026 underpayment rate: 7% Jan-Mar, 6% Apr-Jun, 7% Jul-Sep, 7% Oct-Dec
- How it is figured: Per installment: shortfall x days late / 365 x rate
- Last day counted for 2026: April 15, 2027, or the day you pay if earlier
- No penalty if: Under $1,000 owed, or the 90% / 100% / 110% safe harbor met on time
- Form 2210: Filed only if a Part II box applies; otherwise the IRS sends a bill

## What is the estimated tax penalty?

The estimated tax penalty, which the IRS calls the underpayment of estimated tax by individuals penalty, applies when you do not pay enough tax during the year through withholding and quarterly estimated payments, or when you pay it late. It is not a flat fine. The IRS figures it from three things: the amount of each underpayment, how long it stayed unpaid, and the underpayment interest rate it publishes each quarter.

It mainly reaches people whose income has no tax withheld: freelancers and other self-employed workers, landlords, investors with large gains, and retirees drawing IRA money with nothing withheld. For tax year 2026 the four installments were due April 15, June 15 and September 15, 2026, and the last one is due January 15, 2027, as listed on our [2026 estimated tax due dates](https://taxbracketsdesk.com/estimated-taxes/estimated-tax-due-dates) page.

## How is the estimated tax penalty calculated?

Form 2210 works one installment at a time. Each required installment is normally 25% of your required annual payment, which is the smaller of 90% of your 2026 tax or 100% of your 2025 tax (110% if your 2025 AGI was over $150,000). Those percentages are explained on our [safe harbor estimated tax](https://taxbracketsdesk.com/estimated-taxes/estimated-tax-safe-harbor) page. Payments are applied first to the earliest installment that is still short, and each shortfall is charged for the number of days it remains unpaid.

For each rate period, the penalty worksheet in the Instructions for Form 2210 multiplies the underpayment by the number of days late, divides by 365 and applies that period's rate. The rates come from the IRS quarterly interest rate table, where the underpayment rate for individuals is the federal short-term rate plus 3 percentage points.

| Period | Underpayment rate | Penalty per $1,000 per 30 days |
| --- | --- | --- |
| April 16 to June 30, 2026 | 6% | $4.93 |
| July 1 to September 30, 2026 | 7% | $5.75 |
| October 1 to December 31, 2026 | 7% | $5.75 |
| January 1 to April 15, 2027 | Not yet announced | Not yet announced |

Rate periods for 2026 underpayments (IRS quarterly interest rates)

> **The count stops on April 15, 2027:** For 2025 underpayments, the Form 2210 worksheet stops counting days on April 15, 2026, the return due date. For 2026, the same rule ends the count on April 15, 2027, or on the day you pay, if earlier. Tax still unpaid after that date is charged interest and the separate failure-to-pay penalty instead.

## Example: what does a missed quarterly payment cost?

A freelancer's required annual payment for 2026 is $12,000, so each installment is $3,000. They paid $3,000 on April 15, 2026, skipped the June 15 payment and sent $6,000 on September 15, 2026. The IRS applies the September money first to the June shortfall, so the June installment was $3,000 short for 92 days and the September installment is covered.

| Rate period | Days | Rate | Penalty |
| --- | --- | --- | --- |
| June 16 to June 30, 2026 | 15 | 6% | $7.40 |
| July 1 to September 15, 2026 | 77 | 7% | $44.30 |
| Total | 92 | 6% / 7% | $51.70 |

Penalty on a $3,000 installment paid 92 days late (illustrative)

The charge is modest for one installment, but it repeats for every installment that is short. At the 7% rate that applies from July through December 2026, each $1,000 left unpaid costs about 19 cents a day. Skipping all four 2026 installments and paying everything with the return on April 15, 2027 would run each one from its own due date to April 15, 2027, partly at a first-quarter 2027 rate the IRS has not yet published.

## Is the estimated tax late payment penalty the same as the failure-to-pay penalty?

No. A late or short quarterly payment triggers only the estimated tax penalty, which runs until the April 15 return due date at the latest. The failure-to-pay penalty is a different charge on tax shown on your return that is not paid by its due date: 0.5% of the unpaid tax for each month or part of a month, up to 25% of the unpaid tax, plus interest (IRS failure to pay penalty page).

Someone who underpays all through 2026 and then files on time but cannot pay in April 2027 can face both: the estimated tax penalty up to April 15, 2027, then the failure-to-pay penalty and interest after that. With an approved payment plan on a return filed on time, the failure-to-pay rate drops to 0.25% a month.

## Do I have to file Form 2210?

Usually not. The 2025 Form 2210 shows you owe no penalty if your tax after withholding is under $1,000, if your withholding alone covers the required annual payment, or if withholding and estimated payments met the required installment on every due date. If you may owe a penalty but none of the Part II boxes applies, you do not file the form: the IRS figures the penalty and sends you a bill. You can still work it out yourself and enter it on the estimated tax penalty line of your return, which is line 38 of the 2025 Form 1040.

- **Box A:** you request a waiver of the entire penalty. File page 1; you do not have to figure the penalty.
- **Box B:** you request a waiver of part of the penalty. You figure the penalty and the waiver amount and file the form.
- **Box C:** your income varied during the year and the annualized income installment method, Schedule AI, lowers the penalty.
- **Box D:** treating your withholding as paid on the dates it was actually withheld, instead of in equal parts, lowers the penalty.
- **Box E:** you filed a joint return for one of the two years but not both, and the prior-year amount on line 8 is smaller than 90% of this year's tax on line 5. File page 1.

The 2026 version of Form 2210 has not been released yet, so the 2025 form describes the current rules. If you file on time and pay a penalty bill by the date it shows, the 2025 instructions say no interest is charged on the penalty.

## Can the estimated tax penalty be waived?

Only in narrow cases. The IRS says the penalty generally cannot be waived for reasonable cause alone. It can remove or reduce the penalty when one of these applies (IRS Topic 306 and the IRS underpayment penalty page):

- A casualty, disaster or other unusual circumstance kept you from paying, and charging the penalty would be inequitable.
- You retired after reaching age 62, or became disabled, in the tax year or the year before, and the underpayment was due to reasonable cause and not willful neglect.
- Your underpayment was caused by a federally declared disaster. That relief is generally applied automatically in the covered areas, so you do not file Form 2210 for it.

First-time abatement, the IRS administrative waiver for failure-to-file, failure-to-pay and failure-to-deposit penalties, does not list the estimated tax penalty. What more often cuts it is a recalculation: the annualized income installment method when most income arrived late in the year, or box D when tax was withheld early. If you already have a bill, the IRS asks for a written explanation, signed under penalty of perjury, sent to the address on the notice.

## What should I do now if I missed a 2026 estimated payment?

1. **Pay the shortfall now.** The penalty grows by the day, so a payment through IRS Direct Pay or your IRS Online Account stops the count on that amount. Payments go first to the earliest short installment.
2. **Raise withholding for the rest of 2026 if you have a job or pension.** Withholding counts as paid in equal parts on all four due dates, so extra tax withheld in November and December can reduce the penalty for April, June and September (Instructions for Form 2210). Our [Form W-4 guide](https://taxbracketsdesk.com/payroll-tax/w-4-withholding-guide) shows the extra-withholding line.
3. **Make the fourth payment by January 15, 2027.** Or file your 2026 return by February 1, 2027 and pay the full balance, which removes the need for that last payment but not the penalty already running on earlier ones.
4. **Check whether another method lowers it.** If most of your 2026 income came late in the year, Schedule AI may cut or erase the penalty for the early installments.
5. **Set 2027 payments to the safe harbor.** Paying 100% of your 2026 tax in four installments (110% if 2026 AGI is over $150,000, or $75,000 married filing separately) avoids the penalty for 2027. The dates are on our [estimated tax due dates 2027](https://taxbracketsdesk.com/estimated-taxes/estimated-tax-due-dates-2027) page.

## Common questions

### How much is the penalty for not paying estimated taxes?

It depends on the shortfall and how late it is. In 2026 the IRS charges 6% to 7% a year on each short installment for the days it stays unpaid, so a $3,000 installment due June 15, 2026 and paid 92 days late costs about $51.70.

### Do I owe an underpayment penalty if I get a refund?

You can. The penalty is figured separately for each due date, so an installment that was short in April or June is charged even if you paid enough later and end up with a refund when you file (Instructions for Form 2210).

### Does the IRS calculate the estimated tax penalty for me?

Yes. If no box in Part II of Form 2210 applies, you do not need to file the form; the IRS figures any penalty and mails a bill. You can also figure it yourself and enter it on the estimated tax penalty line of your return.

### Can I avoid the penalty by paying everything in January?

No. Paying the full year on January 15, 2027 meets the year's total but leaves the April, June and September 2026 installments late, each charged from its own due date. Paying earlier, or raising withholding, is what reduces it.

### I filed my 2025 return on extension in October 2026. Why do I have an estimated tax penalty?

An extension gives more time to file, not to pay. The 2025 penalty covers installments that were short between April 15, 2025 and April 15, 2026, at 7% a year. Tax still unpaid after April 15, 2026 also carries interest and the failure-to-pay penalty.

## Sources

- [IRS Topic 306, Penalty for underpayment of estimated tax](https://www.irs.gov/taxtopics/tc306)
- [IRS: Underpayment of estimated tax by individuals penalty](https://www.irs.gov/payments/underpayment-of-estimated-tax-by-individuals-penalty)
- [IRS: Quarterly interest rates](https://www.irs.gov/payments/quarterly-interest-rates)
- [Form 2210 (2025), Underpayment of Estimated Tax by Individuals, Estates, and Trusts](https://www.irs.gov/pub/irs-pdf/f2210.pdf)
- [Instructions for Form 2210 (2025)](https://www.irs.gov/instructions/i2210)
- [IRS: Failure to pay penalty](https://www.irs.gov/payments/failure-to-pay-penalty)
- [IRS: Penalty relief due to first time abate or other administrative waiver](https://www.irs.gov/payments/penalty-relief-due-to-first-time-abate-or-other-administrative-waiver)