Use Form 221 (Underpayment of Estimated Tax by Individuals) to figure if you paid enough estimated tax. Also use this form to see if you are subject to penalty for any late or underpaid payment. The penalty is equal to the interest that would accrue on the underpayment. The penalty cannot be more than 10% of the underpayment.

Are You Subject to the Penalty?

You are subject to the penalty if you had to make estimated payments, but did not pay the right amount or made a payment late.

If your Arizona gross income was less than the prescribed thresholds ($75,000 or $150,000 if married filing jointly) for either 2004 or 2005, you are not subject to the penalty.

Annualized Income Installment Worksheet

If your income varied during the year because, for example, you operated your business on a seasonal basis, you may be able to lower or eliminate the amount of one or more required installments by using the annualized income installment method. Use the Annualized Income Installment Worksheet to figure the amounts to enter on line 11 of Form 221. If you want to use this method, answer yes below.

If you use the Annualized Income Installment Worksheet for any payment due date, you must use it for all payment due dates. To figure the amount of each required installment, the Annualized Income Installment Worksheet automatically selects the smaller of the annualize income installment or the regular installment (increased by the amount saved by using the annualized income installment method in figuring any earlier installments).

For more information about the annualized income installment method, see federal Pub. 505.

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