26 USC 6654 - Failure by individual to pay estimated income tax

U.S Code last checked for updates: Nov 22, 2024

§ 6654.

Failure by individual to pay estimated income tax

(a)

Addition to the tax

Except as otherwise provided in this section, in the case of any underpayment of estimated tax by an individual, there shall be added to the tax under chapter 1, the tax under chapter 2, and the tax under chapter 2A for the taxable year an amount determined by applying—

(1)

the underpayment rate established under section 6621,

(2)

to the amount of the underpayment,

(3)

for the period of the underpayment.

(b)

Amount of underpayment; period of underpayment

For purposes of subsection (a)—

(1)

Amount

The amount of the underpayment shall be the excess of—

(A)

the required installment, over

(B)

the amount (if any) of the installment paid on or before the due date for the installment.

(2)

Period of underpayment

The period of the underpayment shall run from the due date for the installment to whichever of the following dates is the earlier—

(A)

the 15th day of the 4th month following the close of the taxable year, or

(B)

with respect to any portion of the underpayment, the date on which such portion is paid.

(3)

Order of crediting payments

(c)

Number of required installments; due dates

For purposes of this section—

(1)

Payable in 4 installments

(2)

Time for payment of installments

(d)

Amount of required installments

For purposes of this section—

(1)

Amount

(A)

In general

(B)

Required annual payment

For purposes of subparagraph (A), the term “required annual payment” means the lesser of—

(i)

90 percent of the tax shown on the return for the taxable year (or, if no return is filed, 90 percent of the tax for such year), or

(ii)

100 percent of the tax shown on the return of the individual for the preceding taxable year.

Clause (ii) shall not apply if the preceding taxable year was not a taxable year of 12 months or if the individual did not file a return for such preceding taxable year.

(C)

Limitation on use of preceding year’s tax

(i)

In general

(ii)

Separate returns

(iii)

Special rule

(2)

Lower required installment where annualized income installment is less than amount determined under paragraph (1)

(A)

In general

In the case of any required installment, if the individual establishes that the annualized income installment is less than the amount determined under paragraph (1)—

(i)

the amount of such required installment shall be the annualized income installment, and

(ii)

any reduction in a required installment resulting from the application of this subparagraph shall be recaptured by increasing the amount of the next required installment determined under paragraph (1) by the amount of such reduction (and by increasing subsequent required installments to the extent that the reduction has not previously been recaptured under this clause).

(B)

Determination of annualized income installment

In the case of any required installment, the annualized income installment is the excess (if any) of—

(i)

an amount equal to the applicable percentage of the tax for the taxable year computed by placing on an annualized basis the taxable income, alternative minimum taxable income, and adjusted self-employment income for months in the taxable year ending before the due date for the installment, over

(ii)

the aggregate amount of any prior required installments for the taxable year.

(C)

Special rules

For purposes of this paragraph—

(i)

Annualization

(ii)

Applicable percentage

(iii)

Adjusted self-employment income

(D)

Treatment of subpart F income

(i)

In general

(ii)

Prior year safe harbor

If a taxpayer elects to have this clause apply to any taxable year—

(I)

clause (i) shall not apply, and

(II)

for purposes of computing any annualized income installment for such taxable year, the taxpayer shall be treated as having received ratably during such taxable year items of income and credit described in clause (i) in an amount equal to the amount of such items shown on the return of the taxpayer for the preceding taxable year (the second preceding taxable year in the case of the first and second required installments for such taxable year).

(e)

Exceptions

(1)

Where tax is small amount

(2)

Where no tax liability for preceding taxable year

No addition to tax shall be imposed under subsection (a) for any taxable year if—

(A)

the preceding taxable year was a taxable year of 12 months,

(B)

the individual did not have any liability for tax for the preceding taxable year, and

(C)

the individual was a citizen or resident of the United States throughout the preceding taxable year.

(3)

Waiver in certain cases

(A)

In general

(B)

Newly retired or disabled individuals

No addition to tax shall be imposed under subsection (a) with respect to any underpayment if the Secretary determines that—

(i)

the taxpayer—

(I)

retired after having attained age 62, or

(II)

became disabled,

in the taxable year for which estimated payments were required to be made or in the taxable year preceding such taxable year, and

(ii)

such underpayment was due to reasonable cause and not to willful neglect.

(f)

Tax computed after application of credits against tax

For purposes of this section, the term “tax” means—

(1)

the tax imposed by chapter 1 (other than any increase in such tax by reason of section 143(m)), plus

(2)

the tax imposed by chapter 2, plus

(3)

the tax imposed by chapter 2A, minus

(4)

the credits against tax provided by part IV of subchapter A of chapter 1, other than the credit against tax provided by section 31 (relating to tax withheld on wages).

(g)

Application of section in case of tax withheld on wages

(1)

In general

(2)

Separate application

The taxpayer may apply paragraph (1) separately with respect to—

(A)

wage withholding, and

(B)

all other amounts withheld for which credit is allowed under section 31.

(h)

Special rule where return filed on or before January 31

(i)

Special rules for farmers and fishermen

For purposes of this section—

(1)

In general

If an individual is a farmer or fisherman for any taxable year—

(A)

there shall be only 1 required installment for the taxable year,

(B)

the due date for such installment shall be January 15 of the following taxable year,

(C)

the amount of such installment shall be equal to the required annual payment determined under subsection (d)(1)(B) by substituting “66⅔ percent” for “90 percent” and without regard to subparagraph (C) of subsection (d)(1), and

(D)

subsection (h) shall be applied—

(i)

by substituting “March 1” for “January 31”, and

(ii)

by treating the required installment described in subparagraph (A) of this paragraph as the 4th required installment.

(2)

Farmer or fisherman defined

An individual is a farmer or fisherman for any taxable year if—

(A)

the individual’s gross income from farming or fishing (including oyster farming) for the taxable year is at least 66⅔ percent of the total gross income from all sources for the taxable year, or

(B)

such individual’s gross income from farming or fishing (including oyster farming) shown on the return of the individual for the preceding taxable year is at least 66⅔ percent of the total gross income from all sources shown on such return.

(j)

Special rules for nonresident aliens

In the case of a nonresident alien described in section 6072(c):

(1)

Payable in 3 installments

(2)

Time for payment of installments

(3)

Amount of required installments

(A)

First required installment

(B)

Determination of applicable percentage

(k)

Fiscal years and short years

(1)

Fiscal years

(2)

Short taxable year

(l)

Estates and trusts

(1)

In general

(2)

Exception for estates and certain trusts

With respect to any taxable year ending before the date 2 years after the date of the decedent’s death, this section shall not apply to—

(A)

the estate of such decedent, or

(B)

any trust—

(i)

all of which was treated (under subpart E of part I of subchapter J of chapter 1) as owned by the decedent, and

(ii)

to which the residue of the decedent’s estate will pass under his will (or, if no will is admitted to probate, which is the trust primarily responsible for paying debts, taxes, and expenses of administration).

(3)

Exception for charitable trusts and private foundations

(4)

Special rule for annualizations

(m)

Special rule for Medicare tax

(n)

Regulations

(Aug. 16, 1954, ch. 736, 68A Stat. 823; Pub. L. 87–682, § 1(a)(4), Sept. 25, 1962, 76 Stat. 575; Pub. L. 89–368, title I, §§ 102(b)(1)–(3), 103(a), Mar. 15, 1966, 80 Stat. 62–64; Pub. L. 91–172, title III, § 301(b)(13), Dec. 30, 1969, 83 Stat. 586; Pub. L. 92–5, title II, § 203(b)(7), Mar. 17, 1971, 85 Stat. 11; Pub. L. 92–336, title II, § 203(b)(7), July 1, 1972, 86 Stat. 420; Pub. L. 93–66, title II, § 203(b)(7), (d), July 9, 1973, 87 Stat. 153; Pub. L. 93–233, § 5(b)(7), (d), Dec. 31, 1973, 87 Stat. 954; Pub. L. 93–625, § 7(c), Jan. 3, 1975, 88 Stat. 2115; Pub. L. 94–455, title XIX, § 1906(a)(35), (b)(13)(A), Oct. 4, 1976, 90 Stat. 1829, 1834; Pub. L. 95–30, title I, § 102(b)(16), May 23, 1977, 91 Stat. 139; Pub. L. 95–600, title IV, § 421(e)(9), Nov. 6, 1978, 92 Stat. 2877; Pub. L. 97–34, title VI, § 601(a)(6)(A), title VII, § 725(b), (c)(5), Aug. 13, 1981, 95 Stat. 336, 346; Pub. L. 97–248, title II, § 207(d)(7), formerly § 207(c)(7), title III, §§ 307(a)(14), 308(a), 328(a), Sept. 3, 1982, 96 Stat. 420, 590, 591, 618, renumbered § 207(d)(7), Pub. L. 97–448, title III, § 306(a)(1)(A)(i), Jan. 12, 1983, 96 Stat. 2400; Pub. L. 97–448, title I, §§ 106(a)(4)(C), 107(c)(1), title II, § 201(j)(3), Jan. 12, 1983, 96 Stat. 2390, 2391, 2396; Pub. L. 98–67, title I, § 102(a), Aug. 5, 1983, 97 Stat. 369; Pub. L. 98–369, div. A, title IV, § 411, July 18, 1984, 98 Stat. 788; Pub. L. 99–514, title XIV, § 1404(a), title XV, §§ 1511(c)(14), 1541(a), (b), title XVIII, § 1841, Oct. 22, 1986, 100 Stat. 2713, 2745, 2751, 2852; Pub. L. 100–418, title I, § 1941(b)(6)(A), Aug. 23, 1988, 102 Stat. 1324; Pub. L. 100–647, title I, § 1014(d)(1), (2), title IV, § 4005(g)(5), Nov. 10, 1988, 102 Stat. 3560, 3651; Pub. L. 101–239, title VII, § 7811(j)(5), (6), Dec. 19, 1989, 103 Stat. 2411, 2412; Pub. L. 102–164, title IV, § 403(a), (b), Nov. 15, 1991, 105 Stat. 1062, 1064; Pub. L. 103–66, title XIII, § 13214(a), (b), Aug. 10, 1993, 107 Stat. 475; Pub. L. 103–465, title VII, § 711(b), Dec. 8, 1994, 108 Stat. 4998; Pub. L. 105–34, title X, § 1091(a), title XII, § 1202(a), Aug. 5, 1997, 111 Stat. 962, 994; Pub. L. 105–277, div. J, title II, § 2003(a), Oct. 21, 1998, 112 Stat. 2681–901; Pub. L. 106–170, title V, § 531(a), Dec. 17, 1999, 113 Stat. 1928; Pub. L. 111–5, div. B, title I, § 1212, Feb. 17, 2009, 123 Stat. 336; Pub. L. 111–152, title I, § 1402(a)(2), (b)(2), Mar. 30, 2010, 124 Stat. 1062, 1063; Pub. L. 115–141, div. U, title IV, § 401(a)(301), (302), (b)(48), (49), (d)(1)(D)(xix), Mar. 23, 2018, 132 Stat. 1199, 1204, 1205, 1208.)

cite as: 26 USC 6654