Underpayment Penalty
The IRS charge for paying too little estimated tax by a due date, computed as interest on each late installment.
The estimated tax underpayment penalty is calculated on Form 2210 separately for each of the four installments. It works like interest: the unpaid part of an installment is charged the IRS underpayment rate, which is the federal short-term rate plus 3 percentage points, from the installment’s due date until it is paid or April 15 of the next year.
The rate is reset each quarter. For individuals it was 7% in the first quarter of 2026, 6% in the second, and 7% in the third and fourth. The penalty is separate from any failure-to-file or failure-to-pay penalty and is not deductible. It can be avoided entirely by meeting a safe harbor.
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