Resources

The purpose of Schedule AI is to prove to the IRS that you paid enough tax relative to when you earned it. If the math on that form shows that your "required installment" for each quarter was met by your actual payments, the penalty is eliminated for those quarters. 

How "Paying All Taxes" Fits In

It is important to distinguish between paying what you owe and paying when you owe it:

• The IRS Definition of "Success": You avoid the penalty if your payments for each quarter meet the required amount shown on Schedule AI.

• The "Catch-Up" Scenario: If you had high income in Q2 but didn't pay any estimated tax until Q4, you will still have an underpayment penalty for Q2 and Q3, even if your Q4 payment was large enough to cover your entire tax bill for the year. Schedule AI reduces the penalty by showing your Q1 income was low, but it cannot erase a late payment for a high-income Q2.

Summary Checklist for a "Penalty-Free" Return

To ensure you truly owe $0 in penalties using this method:

• Accuracy: Your actual income for each of the four periods (Jan-Mar, Jan-May, Jan-Aug, Jan-Dec) must be reported accurately.

• Timing: Your estimated tax payments must have been made on or before the four IRS deadlines (April, June, Sept, Jan).

• The 90% Target: Your total payments must hit at least 90% of the tax liability shown on your current year's tax return.

Form 2210 - Schedule AI - Annualized Income Installment Method

Roth IRA Conversion | Calculate Estimated Taxes | Avoid Underpayment Penalties  (video)