Estimated quarterly taxes

### What Are Estimated Taxes? Estimated taxes are periodic advance payments of income tax, self-employment tax, and other taxes (such as the alternative minimum tax) that are not subject to withholding.

60 steps across 12 sections

1. Method 1: Prior Year Safe Harbor (Simplest)

  • Find your total tax from last year's return (Form 1040, Line 24)
  • Subtract any withholding you expect for the current year
  • Determine your safe harbor percentage:
  • Prior year AGI $150,000 or less ($75,000 MFS): use 100% of prior year tax
  • Prior year AGI over $150,000 ($75,000 MFS): use 110% of prior year tax
  • Divide by 4 to get each quarterly payment amount
  • Required: $20,000 x 110% = $22,000
  • Each quarterly payment: $22,000 / 4 = $5,500

2. Method 2: Current Year Estimate (More Precise)

  • Estimate your total income for the year (all sources)
  • Subtract expected adjustments (deductions for 50% of SE tax, IRA contributions, student loan interest, etc.)
  • Calculate adjusted gross income (AGI)
  • Subtract deductions (standard or itemized)
  • Calculate tax using the current year's tax brackets
  • Add self-employment tax (15.3% of 92.35% of net SE income)
  • Add other taxes (AMT, additional Medicare tax, net investment income tax)
  • Subtract credits (child tax credit, education credits, etc.)
  • Subtract expected withholding from W-2 or other sources
  • Result: Required estimated tax payments for the year

3. Method 3: Annualized Income Installment (For Uneven Income)

  • Calculate actual income earned in each period:
  • Period 1: January 1 — March 31
  • Period 2: January 1 — May 31
  • Period 3: January 1 — August 31
  • Period 4: January 1 — December 31
  • Annualize each period's income (multiply by 4, 2.4, 1.5, or 1 respectively)
  • Calculate tax on the annualized amount
  • Required payment is the difference between cumulative required tax and cumulative payments already made

4. Paper Check/Money Order

  • Mail payment with the appropriate Form 1040-ES payment voucher (Voucher 1 for Q1, Voucher 2 for Q2, etc.)
  • Make payable to "United States Treasury"
  • Include your SSN, daytime phone number, and "2026 Form 1040-ES" on the memo line
  • Mail to the IRS address listed on the voucher for your state
  • Allow adequate mailing time — the postmark date counts as the payment date

5. Electronic Funds Withdrawal (EFW)

  • Available when e-filing Form 1040 or 1040-SR
  • Can schedule estimated tax payments at the time of filing
  • Convenient for paying the Q1 estimated payment simultaneously with filing your prior-year return

6. Key Details

  • "Total tax liability" means the amount on Form 1040, Line 24 — your total tax before payments and credits applied
  • Prior year return must cover a full 12-month period — if your prior year was a short-year return, the prior-year safe harbor does not apply
  • Withholding counts toward safe harbor — W-2 withholding is treated as paid evenly throughout the year, regardless of when actually withheld (this is a powerful planning tool — see Pro Tips)
  • Refundable credits count — credits like the Earned Income Tax Credit reduce your required payments
  • The $1,000 threshold still applies — if you owe less than $1,000 after subtracting withholding and credits, no penalty regardless of safe harbor

7. High-Income Strategy

  • The 110% prior-year rule is your guaranteed protection — no matter how much more you earn this year, paying 110% of last year's tax avoids penalties
  • This is especially valuable if you have a windfall year (large capital gain, business sale, stock options)
  • The 90% current-year rule may still result in a lower payment if your income drops significantly

8. How the Penalty Works

  • The penalty rate is the federal short-term rate plus 3 percentage points, set quarterly by the IRS
  • Each quarter is evaluated independently — you can be penalized for one quarter but not another
  • The penalty is calculated on Form 2210 (Underpayment of Estimated Tax by Individuals)

9. When the Penalty Does NOT Apply

  • You owe less than $1,000 after subtracting withholding and credits
  • You meet either safe harbor threshold (90% current year or 100%/110% prior year)
  • You had no tax liability in the prior year (full 12-month year, U.S. citizen/resident)
  • The underpayment was due to a casualty, disaster, or other unusual circumstance and the IRS waives the penalty
  • You retired (after age 62) or became disabled during the tax year or prior year, and the underpayment was due to reasonable cause

10. Penalty Waiver

  • The underpayment was due to casualty, disaster, or other unusual circumstances
  • You retired after reaching age 62 or became disabled during the year the estimated payments were due (or the prior year)
  • Request a waiver by filing Form 2210 with your tax return and checking the waiver box

11. States That Require Estimated Payments

  • Threshold for when payments are required (often $400-$1,000 owed)
  • Due dates (many mirror federal dates, but some differ)
  • Safe harbor rules (often mirror federal rules but not always)
  • Forms and payment systems

12. Making State Estimated Payments

  • Most states offer online payment portals (search "[state name] estimated tax payment")
  • Some states accept payments through their own versions of electronic payment systems
  • Paper vouchers are available from state tax agency websites

Pro Tips

  • Ask your employer to increase your W-2 withholding for the remaining pay peri...
  • This retroactively satisfies earlier quarters, unlike an estimated payment wh...
  • This is the single most powerful trick for avoiding estimated tax penalties
  • 25-30%
  • 30-35%

Sources

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