The estimated tax safe harbor: how to avoid the underpayment penalty in 2026

You don't have to predict your 2026 tax bill exactly to avoid a penalty. The IRS has a "safe harbor": if your withholding and estimated payments add up to enough, on time, there is no underpayment penalty, even if you owe more when you file.

The rule

For 2026, your payments need to reach the smaller of:

1. 90% of your 2026 tax, or
2. 100% of your 2025 tax, as shown on your 2025 return. If your 2025 adjusted gross income was over $150,000 ($75,000 if married filing separately), it's 110%. Your 2025 return must cover a full 12 months.

You also owe no penalty if your 2026 tax, minus withholding and refundable credits, comes to less than $1,000.

A worked example

Maya is a single freelance designer. Her 2025 return showed $9,000 of total tax. Her business is growing, and she now expects $80,000 of profit for 2026, which puts her 2026 federal tax at about $16,650.

Option	Amount	Per quarter
90% of 2026 tax	$14,983	$3,746
100% of 2025 tax	$9,000	$2,250

The prior-year option is far cheaper, so she pays $2,250 on each due date. In April 2027 she owes the remaining $7,650 or so with her return, with no penalty, because she met the safe harbor. She still needs that money set aside, but she keeps it in her own account in the meantime.

When to use the current-year option

If your income is falling, 90% of this year's tax can be the smaller number. A designer who earned $120,000 in 2025 but expects $50,000 in 2026 would overpay badly by matching last year. The catch is that the 90% option depends on an estimate, so it needs updating as the year goes on.

Timing matters, not just the total

Each of the four payments has to be on time. Paying the whole amount in January doesn't cover April, June and September, because the penalty is worked out quarter by quarter. Divide your target by four and pay that on each due date.

There are two exceptions worth knowing:

• Withholding counts as paid evenly through the year, whenever it actually came out. If you or your spouse has a W-2 job, raising withholding in the fall can make up for a missed estimated payment earlier in the year.
• The annualized installment method (Form 2210, Schedule AI) lets people with very uneven income pay less in the early quarters. It's more paperwork, and most tax software handles it at filing time.

Your first year on your own

If 2025 was a W-2 year, the prior-year option still works: it's based on your total 2025 tax, wherever it came from. And if you owed no tax at all for 2025, were a US citizen or resident all year, and your return covered 12 months, you can't be charged an underpayment penalty for 2026.

Do the math once

The free calculator compares both options and shows your next payment. The Paid & Filed workbook does the same from your actual transactions and keeps a log of what you've paid, so you can see at a glance whether each quarter is covered.