How much estimated tax should you pay to meet a safe harbor?

U.S. income tax is pay-as-you-go. For wages, an employer handles this through withholding. Income from self-employment, a partnership or S corporation, investments, rent, a bonus or the sale of an asset often arrives with too little withholding, or none.

If you pay too little during the year, you may owe both the remaining tax and an underpayment penalty when you file.

One misunderstanding is common: "If I pay in 100% or 110% of last year's tax, I'm done for this year." That is not what the rule does. The safe harbor protects against the penalty. It does not reduce this year's tax, and it does not give more time to pay the balance.

This article covers the federal rules for individuals for tax year 2026 and the main differences in California.

What does the safe harbor do?

The safe harbor means a taxpayer does not have to predict the year's tax exactly.

A taxpayer who pays at least the required annual payment, on time, generally owes no underpayment penalty. That amount is the smaller of:

• 90% of the tax for the current year or
• 100% of the tax for the prior year, or 110% for higher-income taxpayers.

Withholding and estimated payments made on time both count toward it.

Meeting the annual total is not enough by itself. The IRS measures each payment period separately, so a large payment late in the year does not erase a shortfall from an earlier period.

Who should pay attention to the safe harbor?

The rule matters most for people whose income is not fully covered by withholding:

• Self-employed people, freelancers and independent contractors
• Partners and S corporation shareholders, and anyone receiving a Schedule K-1 with no tax withheld
• Investors with significant interest, dividends, capital gains or digital asset income
• People who sell stock, real estate or another appreciated asset
• Landlords and people with royalty income
• Employees with bonuses, RSUs or stock options that are under-withheld
• Couples with two incomes, and people with more than one job
• Retirees with little withholding on pensions, annuities or Social Security and
• Anyone whose income has grown while their Form W-4 stayed the same.

Having a W-2 job does not remove the issue. An employee who is under-withheld can raise withholding on Form W-4 or make estimated payments with Form 1040-ES.

What is the federal test for 2026?

Estimated payments are generally required for 2026 when both of these are true:

• The taxpayer expects to owe at least $1,000 for the year after subtracting withholding and refundable credits and
• Withholding and refundable credits are expected to be less than the required annual payment.

Three details matter in practice.

The current-year test uses the real number. It is measured against the tax actually shown on the 2026 return. A projection made during the year that turns out too low gives no protection. The prior-year test uses a number that is already known, which is why many taxpayers rely on it.

"Prior-year tax" means total tax. It is not the balance paid with the return and it is not the refund. For example, a taxpayer whose 2025 total tax was $25,000, with $23,000 withheld and $2,000 paid at filing, starts from $25,000. Certain refundable credits reduce the figure, so use the worksheet in the current Form 1040-ES.

The prior-year test has conditions. It is available only when a 2025 return was filed and that return covered a full 12 months.

When does 100% become 110%?

For 2026, the prior-year percentage is 110% when 2025 adjusted gross income was more than $150,000, or more than $75,000 for a taxpayer who is married filing separately in 2026.

• The test uses adjusted gross income, not taxable income.
• The 110% is applied to 2025 tax. It is never applied to the 2026 estimate.
• The threshold is "more than." AGI of exactly $150,000 stays at 100%.
• Farmers and fishermen, with at least two-thirds of gross income from farming or fishing, follow separate rules.
• When filing status changes between the two years, such as joint in 2025 and separate in 2026, the prior-year tax may have to be allocated between spouses first.

Three examples of the calculation

The examples are simplified and ignore special credits.

Example 1: The 100% prior-year test

• 2025 AGI: $120,000
• 2025 total tax: $20,000
• Expected 2026 total tax: $30,000
• Expected 2026 withholding: $8,000

90% of the 2026 tax is $27,000. 100% of the 2025 tax is $20,000. The smaller amount, $20,000, is the target.

Withholding covers $8,000, leaving $12,000 for estimated payments, or $3,000 per installment when income is even.

If the 2026 tax does come in at $30,000, $10,000 is still due with the return. There is generally no underpayment penalty, but the $10,000 has to be paid by the regular filing deadline.

Example 2: The 110% rule

The facts are the same, except 2025 AGI was $200,000.

The prior-year amount is $20,000 × 110% = $22,000, still below $27,000.

After $8,000 of withholding, $14,000 goes through estimated payments, or $3,500 per installment.

Example 3: Income is falling

• 2025 total tax: $40,000, with AGI under the threshold
• Expected 2026 total tax: $20,000

90% of the 2026 tax is $18,000. 100% of the 2025 tax is $40,000. The target is $18,000.

A taxpayer who keeps paying on the basis of last year's tax in this situation ties up cash that is not needed.

Does the safe harbor limit the final tax bill?

No. The safe harbor answers one question: will there be a penalty for paying too little during the year? It does not answer how much tax is owed for the year.

The final tax still depends on actual income, deductions and credits, and on self-employment tax, the net investment income tax, the Additional Medicare Tax and any other tax that applies.

A taxpayer who relies on the prior-year amount in a year when income rises sharply can face a large balance at filing. There may be no penalty, but the balance is due by the original deadline. An extension gives more time to file the return. It does not give more time to pay.

The safe harbor is a way to manage the penalty. It is not always the best plan for cash flow.

What are the federal due dates for 2026?

For a calendar-year individual, each installment is 25% of the required annual payment.

The periods are not four equal quarters.

The January installment can be skipped when the 2026 return is filed and the full balance is paid by February 1, 2027. That does not remove a penalty already building from an earlier period.

A due date that falls on a weekend or legal holiday moves to the next business day.

Why can a penalty apply when the annual total is enough?

The IRS tests each installment separately. It does not look only at the total for the year.

Suppose a taxpayer pays nothing for the first two installments and then pays the whole required annual payment in September. The year's total is met, but the shortfalls for April and June already existed, and the penalty runs on each of them.

A simple way to stay on track:

1. Work out the required annual payment.
2. Subtract the withholding expected for the year.
3. Divide the rest into four installments.
4. Pay each one by its due date.

When income, deductions or credits change materially during the year, recalculate the remaining installments at that point.

What does the penalty cost?

The underpayment penalty works like interest. For each installment, the IRS applies its underpayment rate to the shortfall, from the installment's due date until the earlier of:

• The date the shortfall is paid or
• The due date of the return, which is April 15, 2027 for tax year 2026.

The rate is set each quarter. It was 6% for April through June 2026 and is 7% for July through December 2026. The rate for January 1 through April 15, 2027 has not been announced yet.

The penalty is computed on Form 2210. A reasonable cause explanation generally does not remove it. The IRS can waive it in limited cases, such as a casualty, a disaster or another unusual circumstance, or when the taxpayer retired after reaching age 62, or became disabled, during 2025 or 2026 and the underpayment was due to reasonable cause.

How are withholding and estimated payments timed?

The two are treated differently.

• Withholding from wages, pensions and similar income is treated as paid evenly across the four due dates, no matter when during the year it was actually withheld. A taxpayer can elect on Form 2210 to use the actual dates.
• Estimated payments count on the day they are made.

The result is that raising withholding late in the year, through Form W-4 or Form W-4P, can help cover shortfalls from earlier periods. A late estimated payment only counts from the day it is paid.

A prior-year overpayment applied to 2026 is generally treated as paid on April 15.

What if income is uneven during the year?

Income does not always arrive evenly. A property sale in the third quarter, a large stock gain in December, a seasonal business, self-employment that began mid-year, or a one-time bonus or K-1 allocation are common examples.

Four equal installments would then ask for payments before the income exists. The annualized income installment method recalculates each installment from the income and deductions accumulated up to that point. It can reduce or eliminate the penalty for the periods before the income arrived.

The method is claimed on Schedule AI of Form 2210, filed with the return. It has to be used for all four installments, and it needs records that show when income and deductions occurred.

What if there was no tax last year?

No estimated payments are generally required for 2026 when all three of these are true:

• The taxpayer had no federal income tax liability for 2025
• The taxpayer was a U.S. citizen or resident alien for all of 2025 and
• The 2025 tax year covered a full 12 months.

"No tax liability" means total tax was zero, or no return was required. It does not mean that withholding happened to cover the tax and nothing was due at filing.

What about people who were not U.S. residents all of last year?

This comes up often for people who recently arrived in the United States or changed tax status.

• A person who was a nonresident alien for any part of 2025 cannot use the no-tax-last-year exception above.
• When no U.S. return was filed for 2025, the prior-year test is not available. The target is then 90% of the 2026 tax.
• A nonresident alien makes estimated payments with Form 1040-ES (NR). With wages subject to U.S. withholding, the same four dates apply. Without such wages, the tax is paid in three installments: half by June 15, 2026, a quarter by September 15, 2026, and a quarter by January 15, 2027.

A practical process for 2026

1. Find the total tax on the 2025 return and confirm the return covered 12 months.
2. Check 2025 AGI to see whether the prior-year percentage is 100% or 110%.
3. Project 2026 income, deductions, credits, self-employment tax and other taxes.
4. Compare 90% of the projected 2026 tax with the prior-year amount and take the smaller.
5. Subtract the withholding and credits expected for 2026.
6. Decide between equal installments and the annualized method.
7. Account for any 2025 overpayment applied to 2026 and for payments already made.
8. Recalculate after each period, or after any major change in income.

Looking at the bank account is not enough. Confirm that each payment was posted by the IRS under the right taxpayer ID, the right tax year and the right payment type.

How can an individual pay federal estimated tax?

The main ways to pay are:

• IRS Online Account
• IRS Direct Pay, from a bank account
• Debit card, credit card or digital wallet
• An electronic payment scheduled through tax software or a tax professional and
• A check or money order mailed with a Form 1040-ES voucher. The IRS still accepts mailed payments for now while it moves toward electronic payment.

EFTPS has changed. Individuals can no longer create new EFTPS accounts, and the IRS directs individual taxpayers to Online Account and Direct Pay. Existing individual users can keep using EFTPS for the time being.

When paying, select the correct taxpayer, tax year 2026, and the estimated tax (Form 1040-ES) payment type. A joint payment, a name change, a payment made under the other spouse's number, or the wrong tax year can cause a payment to be credited to the wrong account or year.

How is California different?

California has its own rules. Meeting the federal safe harbor does not mean the California requirement is met.

The California installments for 2026 fall on the federal dates:

Three more California points:

• What counts as tax. California estimated tax includes the alternative minimum tax and the 1% Behavioral Health Services Tax on taxable income over $1,000,000.
• Mandatory electronic payment. Once a taxpayer makes an estimated or extension payment over $20,000, or files an original return with a tax liability over $80,000, all later payments must be made electronically. A 1% penalty applies to payments made another way.
• Penalty form. The California underpayment penalty and the annualized method are computed on form FTB 5805.

Farmers and fishermen and nonresidents have additional rules in the Form 540-ES instructions. Estates and trusts use Form 541-ES.

Common safe harbor mistakes

Common problems include:

• Treating the balance paid with last year's return as last year's tax
• Treating last year's refund as last year's tax
• Multiplying this year's projected tax by 110%, when the 110% applies to last year's tax
• Using taxable income for the $150,000 threshold, when the test is AGI
• Watching only the annual total and ignoring each due date
• Making one large payment late in the year and assuming it reaches back to earlier periods
• Relying on the safe harbor without setting cash aside for the balance due at filing
• Assuming an extension on Form 4868 moves the payment deadline to October
• Applying the federal 25% installments to California
• Leaving out self-employment tax, the net investment income tax or the Additional Medicare Tax
• Not recalculating after a major change in income
• Paying under the wrong tax year, payment type or taxpayer ID and
• Carrying over the tax from last year's joint return after the filing status has changed.

Summary

• The federal test compares 90% of this year's tax with 100% of last year's tax.
• When last year's AGI was over $150,000, last year's percentage is 110%.
• The smaller of the two is the required annual payment.
• When the amount owed after withholding and refundable credits is under $1,000, estimated payments are generally not required.
• The amount has to be paid on time, installment by installment.
• The safe harbor prevents the penalty. It does not reduce the year's tax.

For a taxpayer with steady income, the prior-year amount is simple and predictable. For a taxpayer whose income is rising quickly, seasonal, or driven by a one-time gain, or who has high California income, the payments are better planned from this year's projection, the payment dates and the state rules together.

Before starting the calculation, gather last year's complete return, this year's income and withholding to date, expected K-1 or business profit, investment transaction records, and the federal and state payments already made.

IRS and FTB references

• Form 1040-ES, current year
• Form 1040-ES (NR), current year
• IRS: Estimated taxes
• IRS: Underpayment of estimated tax by individuals penalty
• Instructions for Form 2210
• Internal Revenue Code section 6654
• IRS quarterly interest rates
• IRS: EFTPS
• FTB: Estimated tax payments
• 2026 Form 540-ES instructions
• FTB: Mandatory e-pay