IRS Underpayment Penalty Calculator
The IRS charges an underpayment of estimated tax penalty when you have not paid enough tax during the year. The penalty works like interest: it accrues on the underpaid amount at the federal short-term rate plus 3 percentage points, for each day the payment is late, divided by 365. Because the rate is reset every calendar quarter, this calculator takes the annual penalty rate as an editable input so it is always current. Enter the underpaid amount, the rate from the IRS news release, and the number of days late.
Underpayment penalty formula
Penalty = underpaid amount x (annual rate% / 365) x days late Daily rate factor (per 1,000) = (annual rate% / 365) x 1,000
Form 2210 applies this period by period across the four estimated-tax due dates, with each period using the rate in effect for that time.
Worked example
An underpayment of 5,000 at an 8% annual rate, 120 days late: 5,000 x (0.08 / 365) x 120 = 131.51. The penalty is 131.51.
Underpayment penalty: frequently asked questions
What is the underpayment penalty?
If you do not pay enough income tax during the year through withholding and estimated payments, the IRS charges an underpayment of estimated tax penalty. It is computed like interest: the penalty accrues on the underpaid amount at the federal short-term rate plus 3 percentage points, for the number of days the payment is late. It is reported on Form 2210.
What interest rate does the IRS use?
The penalty rate equals the federal short-term rate plus 3 percentage points and is set by the IRS each calendar quarter. Because it changes quarterly, this calculator takes the annual rate as an editable input. Look up the current quarter's rate in the IRS quarterly interest rate news release before relying on the figure.
How is the penalty calculated?
For each underpaid period, the penalty is the underpaid amount multiplied by the annual rate, multiplied by the number of days late, divided by 365. This calculator computes a single period; Form 2210 splits the year into the four estimated-tax periods, each with its own days and possibly its own rate.
Can I avoid the penalty?
Generally yes if you pay at least 90% of the current year's tax or 100% of last year's tax (110% if your AGI was over the high-income threshold), or if you owe less than the small-balance threshold when you file. The IRS may also waive the penalty for reasonable cause such as a casualty, disaster, or retirement after age 62.
Official sources
- Internal Revenue Service: About Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts.
- Internal Revenue Service: Quarterly Interest Rates.
Reviewed by the CalculatorHub team, edited by James Graham, 19 June 2026. See our methodology.