Can Following Safe Harbor Estimated Tax Payments Still Result in an Underpayment Penalty?

[Trooper]

I just received a letter today from the IRS, indicating I was being assessed a penalty for "Failure to pay proper estimated tax" (in 2025).

In 2025 I made qusrterly estimated tax payments equal to 110% of my 2024 tax liability. After filing my 2025 return in February '26 I received a late 1099-R causing my 2025 taxable income to increase. At that time I created this thread to get some help from this forum. Subsequently I filed an amended return and paid the extra income taxes on 4/1/26.

Today's letter is confusing if not infuriating. The text under the "Failure to pay proper estimated tax" says:

When you don’t pay enough taxes due for the year with your quarterly estimated tax payments and you don’t have enough withholding, we charge a penalty for not properly estimating your tax. For information about estimated tax requirements, download Instructions for Form 2210 or Tax Withholding and Estimated Tax (Publication 505) from IRS.gov or call us for a copy. Note: The penalty amount shown here may differ from the amount shown on this notice. The computation shown here may include late payment penalty on amounts due before the adjustment.

The penalty is nearly $1,200 (!) and the letter contains no calculations to support this. The amount of the additional income tax owed from the amended return was about $8,700. I plan to call the IRS but before I do, any advice?

 

[COcheesehead]

The only thing I could find was that the safe harbor wasn’t timely. If paid as withholding from a deferred account distribution, they view as paid equally throughout the year. Otherwise its owned as earned.

 

[audreyh1]

If in 2025 you paid 110% of 2024 tax 1/4 each by the 4 quarterly deadlines, then you should owe no penalty. Deadlines are 4/15, 6/15, 9/15 and 1/15 of the following year.

If some of your tax was withheld it’s a little more complicated to figure out.

 

[SevenUp]

In 2025 I made estimated tax payments equal to 110% of my 2024 tax liability. After filing my 2025 return in February '26 I received a late 1099-R causing my 2025 taxable income to increase. At that time I created this thread to get some help from this forum. Subsequently I filed an amended return and paid the extra income taxes on 4/1/26.

Thus the estimated tax payments were not "timely," at least not according to the assumptions in Part I of Form 2210.

The penalty is nearly $1,200 (!) and the letter contains no calculations to support this. The amount of the additional income tax owed from the amended return was about $8,700. I plan to call the IRS but before I do, any advice?

Take a close look at Form 2210 and do some hand entering and calculating. What results do you get as you go further through that form? You aren't required to complete the whole thing, but sometimes the more you complete the better for you - and sometimes not.

 

[Mr. Tightwad]

Looking forward to a post from Cathy

 

[Trooper]

Take a close look at Form 2210 and do some hand entering and calculating. What results do you get as you go further through that form? You aren't required to complete the whole thing, but sometimes the more you complete the better for you - and sometimes not.

I plan to do this in a few days. I'm leaving on a trip on the morning and won't be able to get to it for a few days. Also I clarified my OP to indicate that the estimated payments were quarterly.

 

[COcheesehead]

The change in the OP adding an entire linked thread just makes it more confusing

 

[RetiredHappy]

I plan to do this in a few days. I'm leaving on a trip on the morning and won't be able to get to it for a few days. Also I clarified my OP to indicate that the estimated payments were quarterly.

Did you have additional tax withholding that made up the 110%?

 

[cathy63]

I just received a letter today from the IRS, indicating I was being assessed a penalty for "Failure to pay proper estimated tax" (in 2025).

In 2025 I made estimated tax payments equal to 110% of my 2024 tax liability. After filing my 2025 return in February '26 I received a late 1099-R causing my 2025 taxable income to increase. At that time I created this thread to get some help from this forum. Subsequently I filed an amended return and paid the extra income taxes on 4/1/26.

Today's letter is confusing if not infuriating. The text under the "Failure to pay proper estimated tax" says:


The penalty is nearly $1,200 (!) and the letter contains no calculations to support this. The amount of the additional income tax owed from the amended return was about $8,700. I plan to call the IRS but before I do, any advice?

Calling them will not help. You/they can't fix this over the phone.

The letter from the IRS is saying that one or more of these statements is true:

• you did not pay equal quarterly amounts
• you did not pay the quarterlies on time
• you didn't multiply the correct number from your 2024 return by 110%

If all of those are false, then they made a mistake. It happens. If you fill out Form 2210 and send it in with a cover letter explaining that you believe they've miscalculated the penalty they should fix it.

If at least one of those statements is true, then you do owe a penalty. You might be able to reduce the amount by filling out the Schedule AI part of Form 2210. That schedule allows you to annualize your income and determine how much tax was actually owed in each quarter based on the income received up to that date. If your income arrived late in the year, then annualization is likely to help. If it was front-loaded, then you're probably better off paying the penalty the IRS calculated.

The main problem now is that while you're figuring out whether or not you really owe, the interest is piling up and the amount is only increasing. Interest goes up to 7% tomorrow. So if you have the funds, you might want to go ahead and pay to stop the accrual and then let the IRS refund the money once they agree that you don't owe the penalty. They will pay you interest if they refund it.

 

[Trooper]

Did you have additional tax withholding that made up the 110%?

I did, but a minimal amount. $831 from an Inherited IRA distribution in January.

 

[SevenUp]

I did, but a minimal amount. $831 from an Inherited IRA distribution in January.

Putting all $831 in box 11a on Form 2210 may help somewhat, vs. the default of assuming $208 in each of boxes 11a through 11d.

 

[N02L84ER]

Trooper said:
I did, but a minimal amount. $831 from an Inherited IRA distribution in January.

In January of 2025 or January of 2026. I believe a 2026 tax withholding will only apply to 2026 taxes.

 

[RetiredHappy]

In January of 2025 or January of 2026. I believe a 2026 tax withholding will only apply to 2026 taxes.

Good point.

 

[Trooper]

Thanks everyone for your inputs thus far.

Here is how I calculated and paid estimated taxes and withholding for 2025. All data below agrees with my transcript data on irs.gov. Hopefully this will be readable once posted:

2024 Tax Liability​	26,043​	​
​	​	​
Add 10% for Safe Harbor​	28,647​	​
Less 2025 withholding​	-831​	​
Remaining Due in Estimated Payments For Safe Harbor​	27,816​	​
​	​	​
Divide by 4​	6,954​	​
​	​	​
2025 Estimated Tax Payments:​	​	​
Q1 Estimated Pmt​	04/15/25​	6,954​
Q2 Estimated Pmt​	06/13/25​	6,954​
Q3 Estimated Pmt​	09/12/25​	6,954​
RMD W/H paid by Vanguard​	09/15/25​	831​
Q4 Estimated Pmt​	01/13/26​	6,954​
​	​	​
Total Payments​	​	28,647​
​	​	​
By Quarter:​	​	​
1​	​	6,954​
2​	​	6,954​
3​	​	7,785​
4​	​	6,954​

Should this be sufficient to avoid the underpayment penalty? I feel I have met the three criteria that @cathy63 listed above in post #9.

ETA: Line 2 above should read "Add 10% due to Prior Year AGI > $150K"

 

[cathy63]

Your numbers look like you should not owe the penalty. I would fill out Form 2210, making sure to follow the instructions for Lines 2 and 8 carefully. You can also print out your payment record from your irs.gov account.

Write a short cover letter that says you disagree with their calculation of the underpayment penalty and you've attached Form 2210 showing that you don't owe the penalty as well as the record showing when they received each estimated payment. Send that packet back using whatever method the letter you received says to use for a response.

 

[Jerry1]

A twist in this, if I’m reading it correctly is that an amended return was filed. So clearly, the safe harbor was met for the original filing. But, does that extend to the money owing when an additional income amount shows up after the original filing? I actually think so but I’m not sure that filing the 2210 is going to clear this up. I know what a pain this is but I think I’d try to see if I could get an agent on the phone. It’s past tax season and it might actually save you some time. If they never showed you a calculation, it would be helpful to get one or have an agent explain why the penalty was assessed. I think they’re assessing the penalty on the payment from the amended return which on its face seems logical, but it doesn’t seem correct in this case. Still, I’ve never seen the questioned addressed - does the safe harbor extend past the original filing?

 

[plsprius]

Just asking: "The amount of the additional income tax owed from the amended return was about $8,700."

Does this additional income mean that the 110% safe harbor amounts were not enough to get to 110%?

With that much additional income tax due, it looks to me that the safe harbor thresholds probably were not met.

Edit: I think if 2025 ES payments are >= 110% of 2024 taxes due, then no penalty should apply, except for the late payment of tax on the 2025 income due to the late 1099B.

Final edit: I'm confused, clearly.

 

[Trooper]

@Jerry1 you nailed my concern with filing the 2210. I learned that when you file an amendment the IRS ajusts your original 1040 SR. If I use the adjusted income from 1040SR I'll be underwithheld. However I've always understood that meeting safe harbor means your current year income (and its timing) are irrelevant.

 

[Trooper]

Does this additional income mean that the 110% safe harbor amounts were not enough to get to 110%?

The estimated payments weren't enough to get to the amended 2025 amount, but they were enough to get to 110% of the 2024 amount. They were also enough to cover the unamended 2025 liability. Therein lies the issue.

 

[SevenUp]

However I've always understood that meeting safe harbor means your current year income (and its timing) are irrelevant.

"Meeting safe harbor" and "avoiding underpayment penalties" are two very similar but not necessarily identical things.

If you meet any of the Safe harbors found in Part I of Form 2210 you do avoid underpayment penalties. But you may also avoid those penalties by going deeper into Form 2210 (including current year income and timing) if that benefits you.

A Form 2210 filled out, to whatever extent needed, that demonstrates you do not owe an underpayment penalty should be most helpful to you. Is that something you can do or have done?

 

[ERD50]

If your income arrived late in the year, then annualization is likely to help. If it was front-loaded, then you're probably better off paying the penalty the IRS calculated.

Am I confused about withholding (even if done in a lump, like with an IRA withdrawal) being done late in the year?

I was under the impression that you were covered, if your withholding exceeds your tax due. But is that not the case, if say, a large chunk of my taxable income was from a stock sale in Q1, and the w/h was in Q4?

 

[Trooper]

A Form 2210 filled out, to whatever extent needed, that demonstrates you do not owe an underpayment penalty should be most helpful to you. Is that something you can do or have done?

I can and definitely will fill out 2210. I haven't looked closely enough at the Form to see if, when filled out with my situation, it will clearly indicate that I should not owe an underpayment penalty.

 

[audreyh1]

Just asking: "The amount of the additional income tax owed from the amended return was about $8,700."

Does this additional income mean that the 110% safe harbor amounts were not enough to get to 110%?

With that much additional income tax due, it looks to me that the safe harbor thresholds probably were not met.

Edit: I think if 2025 ES payments are >= 110% of 2024 taxes due, then no penalty should apply, except for the late payment of tax on the 2025 income due to the late 1099B.

Final edit: I'm confused, clearly.

Additional income received in 2025 has no impact on the safe harbor based on 2024 taxes.

 

[Trooper]

Additional income received in 2025 has no impact on the safe harbor based on 2024 taxes.

This the way I understand it also; in fact ANY income received in 2025 should have no impact on safe harbor based on 2024 tax liability.

 

[RetiredHappy]

I wonder if tax withholding that was done in Sep constitutes to being untimely.