Chapter 2 of Pub. 505: Estimated Tax Payments

Estimated tax payments are quarterly payments you send the IRS to cover income that doesn’t have taxes withheld at the source, and you generally have to make them if you expect to owe at least $1,000 when you file.¹ The federal system runs pay-as-you-go, so waiting until April to settle an entire year’s tax on self-employment income, investment gains, rental profits, or retirement distributions will cost you a penalty on top of the tax itself.

Who Has to Pay

Two conditions have to line up. You expect to owe $1,000 or more in federal income tax after subtracting withholding and refundable credits, and your withholding plus refundable credits will cover less than the smaller of 90% of this year’s tax or 100% of last year’s tax.² Meet both and you owe quarterly payments.

Self-employment is the most common reason people land here, because no employer is withholding anything. The obligation covers both income tax and the self-employment tax that funds Social Security and Medicare, calculated on Schedule SE.³ For 2026, the Social Security portion applies at 12.4% to the first $184,500 of net self-employment earnings, plus 2.9% Medicare on all net earnings with no cap.⁴ That self-employment tax alone can push you well past the $1,000 threshold before income tax enters the picture.

Other income that commonly triggers quarterly payments: capital gains from selling stocks or property, taxable retirement account distributions where you didn’t request withholding, rental income, royalties, and large freelance or gig earnings. Even W-2 employees sometimes need to pay estimates if they have significant side income or their withholding isn’t keeping up.

The 110% Rule for Higher Incomes

If your adjusted gross income on last year’s return topped $150,000 ($75,000 if married filing separately), the prior-year safe harbor rises from 100% to 110% of last year’s tax.² Miss the higher bar and the safe harbor doesn’t protect you, no matter what this year’s tax turns out to be.

Farmers and Fishermen

If at least two-thirds of your gross income comes from farming or fishing, you can make one estimated payment by January 15 of the following year instead of four quarterly payments, or skip estimated payments entirely by filing your return and paying all tax owed by March 1.⁵ The two-thirds test can be met using either the current or prior year’s income.

When Payments Are Due

The quarters aren’t evenly spaced, which trips people up.⁶

April 15 covers income earned January 1 through March 31
June 15 covers April 1 through May 31
September 15 covers June 1 through August 31
January 15 of the following year covers September 1 through December 31

When a due date falls on a weekend or federal holiday, it shifts to the next business day. The June 15 date catches people who assume they have until the end of the month. You can skip the January 15 payment if you file your return and pay all remaining tax by January 31.

How Much to Pay

Your required annual payment is the smaller of 90% of this year’s tax or 100% of last year’s tax (110% if last year’s AGI was over $150,000). Divide that by four and you have your minimum quarterly payment.² You only need to satisfy one of the two tests.

Prior-Year Safe Harbor

Take last year’s total tax from your Form 1040, multiply by 110% if you’re over the AGI threshold, divide by four, and pay that amount each quarter. No income projection required. Even if your income doubles, you won’t owe a penalty as long as you hit the prior-year number, and any remaining balance is due penalty-free when you file. The trade-off: if this year’s income drops, you’ll overpay and wait for the refund.

Current-Year Projection

If you’d rather pay based on what you actually expect to earn, project your income, deductions, and credits for the year and calculate 90% of the resulting tax. Form 1040-ES includes a worksheet that walks through it: total income, minus the standard or itemized deduction, tax from the brackets, minus credits, plus self-employment tax, minus expected withholding, divided by four.⁷

If your estimate turns out to be off, run a fresh worksheet and adjust the remaining quarterly payments. The penalty is calculated quarter by quarter, so a large payment at year-end doesn’t erase a shortfall from earlier in the year.

Annualized Income for Uneven Earnings

Seasonal businesses, commission-heavy sales, and one-time capital gains often mean you haven’t earned the income yet when the earlier installments come due. The annualized income installment method bases each installment on income actually received through that period. The cumulative periods are:⁸

First period: January 1 through March 31
Second period: January 1 through May 31
Third period: January 1 through August 31
Fourth period: full year

For each period you annualize the income earned so far, calculate the tax on that annualized figure, and subtract payments already made to find the required installment. A freelancer who earns $80,000 in the fourth quarter but only $20,000 through September would owe small installments early and the bulk in January. Using this method requires attaching Form 2210 with Schedule AI to your return to show the IRS why the earlier payments were lower.

How to Make the Payment in 2026

Payment options changed this year. The Electronic Federal Tax Payment System (EFTPS) stopped accepting new individual enrollments as of October 2025. Existing EFTPS users can keep using it for now, but the IRS is directing individual taxpayers to IRS Direct Pay or IRS Online Account.⁹

IRS Direct Pay

Direct Pay is the simplest route. It pulls the payment from your checking or savings account, requires no enrollment, and is free.¹⁰ You can schedule a payment and change or cancel it up to two business days before the scheduled date. The per-payment limit is $10 million. Select “Estimated Tax” as the payment type and choose the correct tax year.

IRS Online Account

An IRS Online Account gives you a dashboard for payments, balance, payment history, and scheduled payments, and it’s the IRS’s preferred replacement for EFTPS for individuals.¹¹ Setup requires identity verification through ID.me the first time.

Card or Digital Wallet

You can pay through IRS-authorized processors, but the fees add up. Debit cards run a flat $2.10 to $2.15 per transaction. Credit cards cost 1.75% to 1.85% of the payment, with a $2.50 minimum.¹² On a $5,000 payment, a 1.85% credit card fee is $92.50. Unless the rewards outweigh that, Direct Pay wins.

By Mail

Form 1040-ES includes four tear-off vouchers. Write your Social Security number, the tax year, and “Form 1040-ES” on the check or money order, make it payable to “United States Treasury,” and mail it with the voucher to the address in the instructions. Get the tax year right; misidentifying it can send the payment to the wrong period and trigger a bogus penalty notice.

The Underpayment Penalty

The estimated tax penalty isn’t a flat fine. It’s an interest charge on the shortfall for the time it went unpaid.² The rate is the federal short-term rate plus three points, reset quarterly. For the first quarter of 2026, that rate is 7%.¹³ The clock runs from each quarterly due date until you make up the shortfall or until April 15 of the following year, whichever comes first. Because the calculation runs quarter by quarter, a large fourth-quarter payment does not undo a first-quarter shortfall.

How to Avoid It

You owe no penalty if any one of these is true:

Your balance after withholding and refundable credits is under $1,000.¹⁴
Withholding plus estimated payments cover at least 90% of this year’s tax.
Withholding plus estimated payments cover at least 100% of last year’s tax, or 110% if last year’s AGI was over $150,000.²

The prior-year safe harbor is popular because it removes the guesswork. In a year when income is growing quickly, paying 100% or 110% of last year’s tax guarantees you’re protected even if you owe a large balance at filing.

Waiver Requests

The IRS can waive the penalty in two situations: a casualty, disaster, or other unusual event that made timely payment inequitable, and retirement after age 62 or disability during the tax year or the preceding year where the underpayment resulted from reasonable cause rather than neglect.¹⁴ Request the waiver through the relevant section of Form 2210 with a written explanation and documentation. In most cases the IRS calculates the penalty automatically and bills you; you only file Form 2210 yourself to claim a waiver or to use the annualized method.⁸

Adjusting Mid-Year

Estimated tax isn’t fixed at the start of the year. A new job with withholding, the sale of a business, an unexpected capital gain, or a drop in income all justify a recalculation. Run a fresh 1040-ES worksheet and adjust the remaining installments.⁷ If a triggering event didn’t happen until later in the year, you’re not penalized for skipping earlier installments as long as you use the annualized method to show the timing.

You can also direct a prior-year overpayment to this year’s estimates by making that election on your Form 1040. The overpayment credits to the first installment and rolls forward until used up, but the election can’t be reversed once made.

State Payments Are Separate

Most states with an income tax also require quarterly estimates, with their own thresholds, deadlines, and penalty rates (often in the 7% to 11% range on top of any federal penalty). Meeting the federal obligation doesn’t satisfy the state’s, so check with your state’s department of revenue before you assume you’re done.

1
Internal Revenue Service. IRS Form 1040-ES – Estimated Tax for Individuals
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Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual to Pay Estimated Income Tax
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Internal Revenue Service. Self-Employment Tax – Social Security and Medicare Taxes
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Social Security Administration. Contribution and Benefit Base
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Internal Revenue Service. Farming and Fishing Income
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Internal Revenue Service. Individuals – Estimated Tax
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Internal Revenue Service. Estimated Taxes
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Internal Revenue Service. Instructions for Form 2210 – Underpayment of Estimated Tax by Individuals, Estates, and Trusts
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Electronic Federal Tax Payment System. Electronic Federal Tax Payment System – Notice to Individual Taxpayers
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Internal Revenue Service. Direct Pay With Bank Account
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Internal Revenue Service. EFTPS – The Electronic Federal Tax Payment System
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Internal Revenue Service. Pay Your Taxes by Debit or Credit Card or Digital Wallet
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Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
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Internal Revenue Service. Topic No. 306 – Penalty for Underpayment of Estimated Tax