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Plan estimated payments to avoid underpayment penalties and interest
Withholding and estimates are how tax gets paid during the year. The return then settles the difference, and paying too little too late can add penalty. This lesson plans payments to stay out of that charge.
Tax is collected as income arrives. Employees usually pay through withholding; the self-employed, investors, and anyone under-withheld pay through estimated tax. Estimates cover the full liability: income tax plus other taxes such as self-employment tax and alternative minimum tax. The return then credits withholding and estimates already paid.
Whether estimates are required is a two-part test. First, the taxpayer must expect to owe at least $1,000 after subtracting withholding and credits. Second, withholding plus credits must fall short of the smaller of two safe-harbor legs: 90% of the current-year tax or 100% of the prior-year tax, which must cover 12 months. That smaller figure is the required annual payment: with $20,000 of expected current-year tax and $12,000 of prior-year tax, \(0.90 \times 20{,}000 = 18{,}000\) against \(1.00 \times 12{,}000 = 12{,}000\) leaves a required annual payment of $12,000. Two groups use different legs: if last year's AGI was over $150,000 ($75,000 if married filing separately), use 110% of last year's tax instead of 100%, while farmers and fishers with at least two-thirds of gross income from farming or fishing substitute 66-2/3% for the current-year 90%.
Louise earns $40,000 of freelance profit with no withholding. She owes income tax plus SE tax figured on that $40,000 of profit: the $40,000 measures her earnings, while her tax bill is a separate figure built from it. Quarterly estimates during the year go toward both taxes. At filing, the return credits the estimates and bills only the remaining unpaid tax. With no estimates, the whole unpaid tax arrives in April with possible penalty on the short installments.
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The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year.View on the source
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Estimated tax is used to pay not only income tax but other taxes such as self-employment tax and alternative minimum tax.View on the source
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You expect to owe at least $1,000 in tax for 2026 after subtracting your withholding and tax credits.View on the source
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You expect your withholding and tax credits to be less than the smaller of: a. 90% of the tax to be shown on your 2026 tax return, or b. 100% of the tax shown on your 2025 tax return. Your 2025 tax return must cover all 12 months.View on the source
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If at least two-thirds of your gross income for 2025 or 2026 is from farming or fishing, substitute 662/3% for 90% in (2a) under General Rule, earlier.View on the source
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If your AGI for 2025 was more than $150,000 ($75,000 if your filing status for 2026 is Married filing a separate return), substitute 110% for 100% in (2b) under General Rule, earlier.View on the source
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General rule. The total amount you must pay is the smaller of: 1. 90% of your total expected tax for 2026, or 2. 100% of the total tax shown on your 2025 return. Your 2025 tax return must cover all 12 months.View on the source
Form 2210 Instructions Page 1
In general, you may owe the penalty for 2025 if the total of your withholding and timely estimated tax payments didn’t equal at least the smaller of: 1. 90% of your 2025 tax, or 2. 100% of your 2024 tax.View on the source
Mara files single. For 2026 she expects total tax of $18,000 and withholding plus refundable credits of $16,600. Her 2025 return covered 12 months and showed tax of $16,000. What is her required annual payment for 2026, and must she pay estimated tax?
A mid-year check lets the taxpayer correct a shortfall before year-end. Project the full-year liability, subtract withholding expected for the rest of the year, and divide the gap over the remaining estimate dates. Either method covers the gap: higher withholding for the rest of the year or larger remaining estimates.
The year is divided into four payment periods with fixed due dates:
| Income first subject to estimates | First payment by | Later payments by |
|---|---|---|
| Before April 1 | April 15 | June 15, September 15, January 15 |
| April 1–May 31 | June 15 | September 15, January 15 |
| June 1–August 31 | September 15 | January 15 |
| After August 31 | January 15 | (none) |
If a due date lands on a Saturday, Sunday, or legal holiday, payment on the next business day is on time. Filing the return by January 31 and paying the balance replaces the January 15 installment. Fiscal-year filers use a parallel set of 15th-day dates starting with the 4th month of their year.
Timing determines which period each payment counts toward. Withholding is treated as paid one-fourth on each due date unless shown otherwise, and electing actual-date treatment requires checking box D. Estimates land in period columns instead: payments through April 15, then after April 15 through June 15, and so on through January 15.
Where income arrives unevenly, equal installments overcharge the early periods. The annualized income installment method annualizes period income, deductions, and other items from the year's start through each period-end on Worksheet 2-9, which can lower one or more required installments. Anyone using it must file Form 2210, completing Schedule AI before the penalty computation.
Marcus projects $50,000 of income, $8,000 of total tax, and $3,000 of withholding by August with $2,000 more expected by December. Paid plus expected withholding totals $5,000 against $8,000 of tax, leaving a $3,000 gap over the two remaining due dates, September 15 and January 15. He raises his September withholding and schedules $1,500 per remaining date. The same gap left until April becomes an underpayment.
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Before April 1 April 15 June 15 Sept. 15 Jan. 15 next yearView on the source
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Saturday, Sunday, holiday rule. If the due date for an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next day that isn’t a Saturday, Sunday, or a holiday.View on the source
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January payment. If you file your 2026 Form 1040 or 1040-SR by January 31, 2027, and pay the rest of the tax you owe, you don’t need to make the payment due on January 15, 2027.View on the source
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Fiscal-year taxpayers. If your tax year does not start on January 1, your payment due dates are: 1. The 15th day of the 4th month of your fiscal year,View on the source
Form 2210 Instructions Page 4
For withheld federal income tax and excess social security or tier 1 RRTA, you are considered to have paid one-fourth of these amounts on each payment due date unless you can show otherwise.View on the source
Form 2210 Instructions Page 4
If you treat withholding as paid on the dates it was actually withheld for estimated tax purposes, you must check box DView on the source
Form 2210 Instructions Page 4
Entries on Form 2210. Enter on line 11 the applicable tax payments. • Column (a)—payments made through April 15, 2025. • Column (b)—payments made after April 15, 2025, through June 15, 2025. • Column (c)—payments made after June 15, 2025, through September 15, 2025. • Column (d)—payments made after September 15, 2025, through January 15, 2026.View on the source
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If you don’t receive your income evenly throughout the year (for example, your income from a repair shop you operate is much larger in the summer than it is during the rest of the year), your required estimated tax payment for one or more periods may be less than the amount figured using the regular installment method.View on the source
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The annualized income installment method annualizes your tax at the end of each period based on a reasonable estimate of your income, deductions, and other items relating to events that occurred from the beginning of the tax year through the end of the period.View on the source
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To see whether you can pay less for any period, complete the 2026 Annualized Estimated Tax Worksheet (Worksheet 2-9).View on the source
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If you use the annualized income installment method to figure your estimated tax payments, you must file Form 2210 with your 2026 tax return.View on the source
Form 2210 Instructions Page 4
If you checked box C in Part II, complete Schedule AI before Part III.View on the source
Priya's required annual payment is $20,000. She expects $8,000 of withholding and makes no election about its timing. How much estimated tax must she pay, and when, to cover each installment?
The underpayment penalty measures amounts and timing. Form 2210 compares each required installment, usually one-fourth of the required annual payment, against what was paid when. Small balances stay out: total tax minus withholding below $1,000 does not enter the computation. Above that amount, each installment stands alone. The penalty is figured separately for each due date, so a September catch-up leaves the June shortfall penalized for the gap; payments apply to the earliest short installment first, and each underpayment draws penalty for the days it remains unpaid. The IRS generally figures the penalty.
Waiver requires an IRS finding on one of two grounds: retirement after 62 or disability with reasonable cause, or casualty, disaster, or other unusual circumstance making the penalty inequitable. The taxpayer requests it by checking box A or box B, attaching Form 2210 with a statement of reasons and the period covered, plus documentation such as retirement or disability dates.
Nina owes $5,000 total with $4,400 withheld, leaving $600. Because $600 is below $1,000, no penalty computation follows. Had she owed $5,000 with $2,000 withheld, the $3,000 balance would enter Form 2210, tested installment by installment, with penalty on each short quarter.
Publication 505 Page 1
If you didn’t pay enough tax during the year, either through withholding or by making estimated tax payments, you may have to pay a penalty. Generally, the IRS can figure this penalty for you.View on the source
Form 2210 Instructions Page 1
The total tax shown on your 2025 return minus the amount of tax you paid through withholding is less than $1,000.View on the source
Form 2210 Instructions Page 4
For most taxpayers, this is one-fourth of the required annual payment shown on Part I, line 9.View on the source
Form 2210 Instructions Page 1
The penalty is figured separately for each installment due date. Therefore, you may owe the penalty for an earlier due date even if you paid enough tax later to make up the underpayment. This is true even if you’re due a refund when you file your tax return.View on the source
Form 2210 Instructions Page 4
Your payments are applied first to any underpayment balance on an earlier installment even if you designate a payment for a later period.View on the source
Form 2210 Instructions Page 4
The penalty is figured for the number of days that each underpayment remains unpaid.View on the source
Form 2210 Instructions Page 2
If you have an underpayment, all or part of the penalty for that underpayment will be waived if the IRS determines that: • In 2024 or 2025, you retired after reaching age 62 or became disabled, and your underpayment was due to reasonable cause (and not willful neglect); or • The underpayment was due to a casualty, disaster, or other unusual circumstance, and it would be inequitable to impose the penalty.View on the source
Form 2210 Instructions Page 2
a. If you checked box A, complete only page 1 of Form 2210 and attach it to your tax return (you aren’t required to figure the amount of penalty to be waived). b. If you checked box B, complete Form 2210 through line 18 without regard to the waiver.View on the source
Form 2210 Instructions Page 2
Attach Form 2210 and a statement to your return explaining the reasons you were unable to meet the estimated tax requirements and the time period for which you are requesting a waiver.View on the source
Form 2210 Instructions Page 2
If you’re requesting a waiver due to retirement or disability, attach documentation that shows your retirement date (and your age on that date) or the date you became disabled.View on the source
Lena's required installments were $4,000 each. She paid nothing in April, $8,000 in June, and full amounts after that, and her return shows a refund. Can a penalty still apply?
The course asks you questions like these as you learn, brings back the ones you miss, and ends with full-length practice exams.
See the course Or take the free 12-question checkGroundSkill is independently produced and is not affiliated with or endorsed by the IRS. Sources last checked 2026-09-14. Exam preparation, not tax advice.