In general, you may owe a penalty for 2000 if the total of your withholding and estimated tax payments did not equal at least the smaller of:

1. 90% of your 2000 tax, or
2. 100% of your 1999 tax. (Your 1999 tax return must cover a 12-month period.)

Your 2000 tax, for this purpose, is your Total tax for 2000, defined under Exceptions, later.

Special rules for certain individuals. There are special rules for farmers and fishermen, and for certain higher income taxpayers.

Farmers and fishermen. If at least two-thirds of your gross income for 1999 or 2000 is from farming or fishing, substitute 66 2/3% for 90% in (1) above.

See Farmers and Fishermen later.

Higher income taxpayers. If less than two-thirds of your gross income for 1999 and 2000 is from farming or fishing and your adjusted gross income (AGI) for 1999 was more than $150,000 ($75,000 if your filing status is married filing a separate return in 2000), substitute 108.6% for 100% in (2) above.

For 1999, AGI is the amount shown on Form 1040 - line 34; Form 1040A - line 18; and Form 1040EZ - line 4.

Penalty figured for each period. Because the penalty is figured separately for each payment period, you may owe a penalty for a payment period even if you later paid enough to make up the underpayment. If you did not pay enough tax by the due date of any of the payment periods, you may owe a penalty even if you are due a refund when you file your income tax return.

Example 4.1. You did not make estimated tax payments during 2000 because you thought you had enough tax withheld from your wages. Early in January 2001, you made an estimate of your total 2000 tax. Then you realized that your withholding was $2,000 less than the amount needed to avoid a penalty for underpayment of estimated tax.

On January 11, you made an estimated tax payment of $3,000, the difference between your withholding and your estimate of your total tax. Your final return shows your total tax to be $50 less than your estimate, so you are due a refund.

You do not owe a penalty for your payment due January 16, 2001. However, you may owe a penalty through January 11 for your underpayments for the earlier payment periods.

Minimum required each period. You will owe a penalty for any 2000 payment period for which your estimated tax payment plus your withholding for the period and overpayments for previous periods was less than the smaller of:

1. 22.5% of your 2000 tax, or
2. 25% of your 1999 tax. (Your 1999 tax return must cover a 12-month period.)

Note. If you are subject to the rule for higher income taxpayers, discussed earlier, substitute 27.15% for 25% in (2) above.

When penalty is charged. If you miss a payment or you paid less than the minimum required in a period, you may be charged an underpayment penalty from the date the amount was due to the date the payment is made.

Trust payments of estimated tax credited to you. If you were a beneficiary of an estate or trust that credited its estimated tax payments to you, treat the amount credited (line 14a of Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, Etc.) as an estimated tax payment made by you on January 16, 2001.

Amended returns. If you file an amended return by the due date of your original return, use the tax shown on your amended return to figure your required estimated tax payments. If you file an amended return after the due date of the original return, use the tax shown on the original return.

However, if you and your spouse file a joint return after the due date to replace separate returns you originally filed by the due date, use the tax shown on the joint return to figure your required estimated tax payments. This rule applies only if both original separate returns were filed on time.

1999 separate returns and 2000 joint return. If you file a joint return with your spouse for 2000, but you filed separate returns for 1999, your 1999 tax is the total of the tax shown on your separate returns. You filed a separate return for 1999 if you filed as single, head of household, or married filing separately.

1999 joint return and 2000 separate returns. If you file a separate return for 2000, but you filed a joint return with your spouse for 1999, your 1999 tax is your share of the tax on the joint return. You filed a separate return if you filed as single, head of household, or married filing separately. To figure your share, first figure the tax both you and your spouse would have paid had you filed separate returns for 1999 using the same filing status as for 2000. Then multiply your joint tax liability by the following fraction:

Example 4.2. Lisa and Paul filed a joint return for 1999 showing taxable income of $48,000 and a tax of $7,851. Of the $48,000 taxable income, $40,000 was Lisa's and the rest was Paul's. For 2000, they file married filing separately. Lisa figures her share of the tax on the 1999 joint return as follows:

Tax on $40,000 based on a separate return	$ 8,409
Tax on $8,000 based on a separate return	1,204
Total	$ 9,613
Lisa's portion of total ($8,409 x $ 9,613)	87%
Lisa's share of 1999 joint return tax ($7,851 x 87%)	$ 6,830

Form 2210. In most cases, you do not need to file Form 2210. The IRS will figure the penalty for you and send you a bill. If you want us to figure the penalty for you, leave the penalty line on your return blank. Do not file Form 2210. If you want to figure your penalty, complete Part I, Part II, and either Part III or Part IV of Form 2210. See Reasons for filing to determine whether you should file Form 2210. If you use Form 2210, you cannot file Form 1040EZ.

On Form 1040, enter the amount of your penalty on line 70. If you owe tax on line 69, add the penalty to your tax due and show your total payment on line 69. If you are due a refund, subtract the penalty from the overpayment you show on line 66.

On Form 1040A, enter the amount of your penalty on line 45. If you owe tax on line 44, add the penalty to your tax due and show your total payment on line 44. If you are due a refund, subtract the penalty from the overpayment you show on line 41.

Reasons for filing. You may be able to lower or eliminate your penalty if you file Form 2210. You must file Form 2210 with your return if any of the following applies.

• You request a waiver. See Waiver of Penalty, later.
• You use the annualized income installment method. See the explanation of this method under Figuring Your Underpayment, later.
• You use your actual withholding for each payment period for estimated tax purposes. See Actual withholding method under Figuring Your Underpayment, later.
• You base any of your required installments on the tax shown on your 1999 return and you filed or are filing a joint return for either 1999 or 2000 but not for both years.

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