Annualized Income Installment Method
A way to size each estimated payment by income actually earned so far, which protects people with uneven income from penalties.
Under the annualized income installment method, profit earned through March 31, May 31, August 31 and December 31 is scaled up by factors of 4, 2.4, 1.5 and 1. The tax on each annualized figure is multiplied by 22.5%, 45%, 67.5% and 90% to find how much should have been paid by each due date.
The requirement at each date is the smaller of the annualized amount and the regular installment amount. The method is elected on Schedule AI of Form 2210 and reduces or removes the underpayment penalty for freelancers whose income arrives late in the year.
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