Short Method for Figuring the Penalty

You may be able to use the short method in Part III of Form 2210 to figure your penalty for underpayment of estimated tax. If you qualify to use this method, it will result in the same penalty amount as the regular method. However, either the annualized income installment method or the actual withholding method, explained later, may result in a lower penalty.

You can use the short method only if you meet one of the following requirements.

1. You made no estimated tax payments for 2000 (it does not matter whether you had income tax withholding); or
2. You paid estimated tax in four equal amounts on the due dates.

Note. If any payment was made earlier than the due date, you can use the short method, but using it may cause you to pay a larger penalty than using the regular method. If the payment was only a few days early, the difference is likely to be small.

If you do not meet either requirement, figure your penalty using the regular method in Part IV, Form 2210.

You cannot use the short method if any of the following applies.

1. You made any estimated tax payments late.
2. You checked the box on line 1b or 1c in Part I of Form 2210.
3. You are filing Form 1040NR or 1040NR-EZ and you did not receive wages as an employee subject to U.S. income tax withholding.

Note. If you use the short method, you cannot use the annualized income installment method to figure your underpayment for each payment period. Also, you cannot use your actual withholding during each period to figure your payments for each period. These methods, which may give you a smaller penalty amount, are explained later under Figuring Your Underpayment.

Completing Part III. Complete Part III following the line-by-line instructions.

First, figure your total underpayment for the year (line 18) by subtracting the total of your withholding and estimated tax payments (line 17) from your required annual payment (Part II, line 14). Then figure the penalty you would owe if the underpayment remained unpaid up to April 15, 2001. (Even though your return is actually due on April 16, 2001, it is considered to have been filed on April 15.) This amount (line 19) is the maximum estimated tax penalty on your underpayment.

Next, figure any part of the maximum penalty you do not owe (line 20) because your underpayment was paid before the due date of your return. For example, if you filed your 2000 return and paid the tax balance on April 3, 2001, you do not owe the penalty for the 12-day period from April 4 through April 15. Therefore, you would figure the amount to enter on line 20 using 12 days.

Finally, subtract from the maximum penalty amount (line 19) any part you do not owe (line 20). The result (line 21) is the penalty you owe. Enter that amount on line 70 of Form 1040 or line 45 of Form 1040A. Attach Form 2210 to your return only if you checked one of the boxes in Part I.

Example 4.5. The facts are the same as in Example 4.4. Ivy paid her estimated tax payments in four installments of $1,700 ($6,800 x 4) each on the dates they were due.

Ivy qualifies to use the short method to figure her estimated tax penalty. Using the annualized income installment method or actual withholding will not give her a smaller penalty amount because her income and withholding were distributed evenly throughout the year. Therefore, she figures her penalty in Part III of Form 2210 and leaves Part IV (not shown) blank.

Ivy figures her $1,500 total underpayment for the year (line 18) by subtracting the total of her withholding and estimated tax payments ($8,400) from her $9,900 required annual payment (Part II, line 14). The maximum penalty on her underpayment (line 19) is $90 ($1,500 x .05976).

Ivy plans to file her return and pay her $2,600 tax balance on March 16, 2001, 30 days before April 15. Therefore, she does not owe part of the maximum penalty amount. The part she does not owe (line 20) is figured as follows.

formula

Ivy subtracts the $11 from the $90 maximum penalty and enters the result, $79, on line 21 and on line 70 of her Form 1040. She adds $79 to her $2,600 tax balance and enters the result, $2,679, on line 69 of her Form 1040. Ivy files her return on March 15 and attaches a check for $2,679. Because Ivy did not check any of the boxes in Part I, she does not attach Form 2210 to her tax return.

Ivy's filled-in Form 2210 is shown at the end of this chapter.

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