Arizona Form 221, Underpayment of Estimated Tax by Individuals, is used to determine whether a taxpayer owes a penalty for underpaying Arizona income tax during the year through withholding and estimated tax payments. Taxpayers may need to complete Form 221 if they did not pay enough tax throughout the year or if they are requesting a waiver of the penalty.
Penalty Waiver Exception
- A taxpayer may request a waiver of all or part of the underpayment penalty if:
- The underpayment was due to a casualty, disaster, or other unusual circumstance, and imposing the penalty would be inequitable.
- The taxpayer retired after reaching age 62 or became disabled during the tax year or the preceding tax year, and the underpayment was due to reasonable cause rather than willful neglect.
To request a waiver:
Complete Form 221 as instructed.
- Check the appropriate waiver box on Form 221.
- Attach a statement explaining the reason for the waiver request and any supporting documentation.
- Include Form 221 with your Arizona Form 140, Form 140PY, or Form 140NR.
Calculating the Penalty
For taxpayers who do not qualify for a waiver, Form 221 is used to calculate the penalty based on the amount and timing of underpaid tax installments.
The calculation takes into account:
Required annual payment amounts.
- Estimated tax payments made during the year.
- Arizona income tax withheld during the year.
- The number of days each underpayment remained unpaid.
- Applicable interest rates for the period of underpayment.
Taxpayers must follow the line-by-line instructions in Form 221 to determine the penalty amount.
Source:
Arizona Form 221 (2025) - Underpayment Penalty Instructions
Disclaimer: Always verify details with the official Arizona Department of Revenue forms and instructions. For complex situations, consult a CPA or tax attorney.