How to Avoid the Estimated Tax Penalty

The two safe harbors

You generally avoid the underpayment penalty if your payments and withholding for the year add up to at least the smaller of:

• 90% of this year’s tax, or
• 100% of last year’s tax, using the full amount shown on last year’s return (110% if last year’s adjusted gross income was above $150,000, or $75,000 if married filing separately).

The second test is useful when your income is rising. If you owed $4,000 last year, paying $1,000 per quarter protects you even if this year’s tax turns out to be much higher, though you will owe the difference when you file.

When there is no penalty at all

There is generally no penalty if you owe less than $1,000 after withholding and credits, or if you had no tax liability last year and were a US citizen or resident for the whole year.

What the penalty is

It works like interest on the amount you underpaid, for the time it was late. The rate is set by the IRS every quarter. It is usually far smaller than people fear, but it is also avoidable. The IRS calculates it on Form 2210, or does the math for you.

If your income is uneven

Creators and seasonal workers often earn most of their income late in the year. The annualized income installment method on Form 2210 lets you base each payment on the income you had earned by then, which can reduce or remove the penalty even if you paid nothing early.

Your state has its own rules

The safe harbors above are federal. States that tax income have their own underpayment rules, thresholds and sometimes different rates. If you pay federal estimated tax, check your state’s requirements as well. Our state tax guide shows your state’s 2026 rates.

A simple routine

1. Run the self-employment tax calculator or a profession-specific one.
2. Move the suggested percentage of every payout into a separate account.
3. Pay it on the due dates.
4. In January, compare the total with last year’s tax to see whether you met the safe harbor.

Frequently asked questions

What is the safe harbor for estimated taxes?

Paying at least 90% of this year’s tax or 100% of last year’s (110% for higher earners) generally protects you from the underpayment penalty.

What if I have never paid estimated tax?

Start with the next due date. The penalty applies to the amount underpaid and the time it was late, so paying sooner reduces it.

Does the penalty apply if I get a refund?

Generally not, because there is nothing underpaid. The penalty applies when you owe at filing time and did not pay enough during the year.

Is the 110% rule for everyone?

It applies when last year’s adjusted gross income was above $150,000 ($75,000 for married filing separately). Otherwise 100% is enough.

Sources

• IRS Publication 505: Tax withholding and estimated tax
• IRS Topic 306: Penalty for underpayment of estimated tax
• IRS: Estimated taxes

General information, not tax advice. See our disclaimer.

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