IRS Estimated Tax: How to Pay Estimated Taxes and Avoid the Underpayment Penalty

The Internal Revenue Service has released updated guidance on IRS estimated tax obligations for the 2025 tax year. Taxpayers who pay estimated taxes through timely quarterly estimated tax payments can avoid the underpayment penalty, even if they ultimately owe additional income tax when filing their federal tax return under current tax law.

Calculating Estimated Tax Payments Under the Safe Harbor Rule

The Internal Revenue Service has released updated guidance on IRS estimated tax obligations for the 2026 tax year. Taxpayers who pay estimated taxes through timely quarterly estimated tax payments can avoid the underpayment penalty, even if they ultimately owe additional income tax when filing their federal tax return under current tax law.

The Internal Revenue Service explains that taxpayers can meet the safe harbor rule by paying either 90% of their current tax liability or 100% of the tax shown on their prior-year tax return. For high-income taxpayers with adjusted gross income over $150,000—or $75,000 if married filing separately—the threshold rises to 110% of the previous year's return.

Taxpayers who owe less than $1,000 after federal income tax withholding and credits are not subject to an estimated tax penalty. Farmers and fishermen have reduced thresholds.

Quarterly Estimated Tax Payments: Deadlines and Options

For the 2026 tax year, quarterly estimated tax payments are due on April 15, 2026; June 15, 2026; September 15, 2026; and January 15, 2027. If any due date falls on a Saturday, Sunday, or legal holiday, the payment is on time if made on the next business day. Taxpayers who file their 2026 Form 1040 or 1040-SR by January 31, 2027, and pay any remaining balance due at that time do not need to make the January 15, 2027, installment. Missing a quarterly payment can lead to an underpayment penalty, even if taxpayers ultimately receive a tax refund at tax time.

The IRS allows taxpayers to pay estimated amounts through several methods:

• Direct Bank Transfer: Taxpayers can make payments directly from a checking or savings account using IRS Direct Pay at IRS.gov/Payments.
• Electronic Funds Withdrawal: When filing electronically through tax software, a tax professional, or IRS.gov, taxpayers may authorize an electronic funds withdrawal to submit estimated payments.
• Card Payments: Taxpayers may also use a debit or credit card to submit their estimated payments, though fees apply.

Who Needs to Pay Estimated Taxes Throughout the Year

The IRS notes that taxpayers who receive income not subject to tax withholding may need to pay estimated taxes throughout the year. This includes:

• Self-Employment Income: Self-employed workers, sole proprietors, and contractors must make estimated payments since regular withholding does not cover their income.
• Investments and Other Income: Investors with dividends, interest, capital gains, rents, royalties, or other income streams may be required to make quarterly estimated tax payments to cover their tax liability.
• New Jobs and Withholding Gaps: Workers starting a new job where withholding may not cover total obligations must make estimated tax payments to avoid the underpayment penalty.

Because payments must account for income tax, self-employment tax, and the alternative minimum tax, taxpayers should carefully assess their tax situation. Unequal or seasonal income may require adjusting estimated payments to ensure compliance with federal tax rules.

Why Estimated Taxes Matter in the 2026 Tax Year

The IRS guidance on estimated taxes is especially relevant in 2026, as more taxpayers rely on side income, capital gains, and self-employment. The system is built on federal income tax "pay-as-you-go" rules, meaning taxpayers must make quarterly estimated payments or have enough income tax withheld to cover their tax liability.

For households, the rules apply to income tax and obligations such as self-employment tax and the alternative minimum tax. Credits like the Child Tax Credit can reduce balances owed, but taxpayers may still need to pay in advance. Using IRS tools to calculate estimated tax payments helps confirm compliance by using the prior tax year return as a guide.

IRS Estimated Tax Guidance: Quotes on Making Estimated Tax Payments

"Income taxes are pay-as-you-go," the Internal Revenue Service reminded taxpayers, emphasizing the need to pay estimated yearly taxes. IRS Publication 505 notes that taxpayers can avoid the underpayment penalty by following the safe harbor rule when calculating estimated tax payments based on current or prior year obligations.

How Taxpayers Can Pay Estimated Taxes and Avoid Penalties

The safe harbor rule provides a reliable way for self-employed taxpayers, sole proprietors, and others who receive other income, such as capital gains, to avoid penalties. Making quarterly estimated tax payments helps ensure that both federal income tax and self-employment tax are covered, even when income is uneven or seasonal.

The IRS notes that taxpayers should review their federal tax return and use the IRS Tax Withholding Estimator and other online tools to calculate estimated tax payments. These resources help determine whether additional amounts are required, particularly when obligations exceed income tax withheld, including the alternative minimum tax.

Official IRS Sources

• IRS Publication 505: Tax Withholding and Estimated Tax
  
• IRS Form 1040-ES: Estimated Tax for Individuals
  
• IRS Tax Withholding Estimator
  
• IRS Newsroom

By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now