To avoid the IRS underpayment penalty for 2026, pay on time each quarter at least the smaller of 90 percent of your 2026 tax or 100 percent of the tax on your 2025 return, rising to 110 percent if your 2025 adjusted gross income topped $150,000. Owing under $1,000 when you file also avoids it.
Those are the three safe harbors, and the table below runs them on one set of numbers: a vendor whose 2025 return showed $8,000 of total tax and who expects $10,000 for 2026.
| Safe harbor | What it requires for 2026 | Paid by the due dates in this example | Per installment |
|---|---|---|---|
| Prior year tax | 100 percent of the tax on the 2025 return | $8,000 | $2,000 |
| Prior year tax, higher income | 110 percent when 2025 adjusted gross income was over $150,000 | $8,800 | $2,200 |
| Current year tax | 90 percent of the 2026 tax | $9,000 | $2,250 |
| Small balance | Owe less than $1,000 after withholding and credits | Not applicable | Not applicable |
The rule takes whichever of the first three applies to you and is smaller. For this vendor that is the $8,000 prior year figure, or $8,800 with 2025 income above $150,000. The source for each row: the IRS estimated taxes page states the 90 percent, 100 percent and $1,000 tests and says "whichever is smaller"; IRS Publication 505 adds that "If your AGI for 2025 was more than $150,000 ($75,000 if your filing status for 2026 is Married filing separately), substitute 110% for 100%"; and the penalty itself, with the same safe harbors, is written into 26 U.S.C. 6654.
Who has to pay estimated tax in 2026?
Anyone, sole proprietors included, who expects to owe $1,000 or more when the 2026 return is filed generally has to make estimated payments, according to the IRS estimated taxes page. Self employment tax counts toward that total, and it starts early: the IRS self employment tax page says you owe it once your net earnings from self employment were $400 or more.
Publication 505 excuses you from 2026 estimated tax only if all three of these were true: you had no tax liability for 2025, you were a U.S. citizen or resident alien for the whole year, and your 2025 tax year covered 12 months.
A vendor who still holds a paycheck job has another route. Publication 505 says that if you receive salaries and wages, "you may be able to avoid paying estimated tax by asking your employer to take more tax out of your earnings," which you do by filing a new withholding certificate with that employer.
The 2026 due dates
Publication 505 lists April 15, 2026, June 15, 2026, September 15, 2026 and January 15, 2027. The periods are uneven: the June payment covers only April and May, while the January payment covers four months.
Paying more often is allowed. The estimated taxes page says that if it is easier to pay weekly or monthly, "you can, as long as you’ve paid enough in by the end of the quarter." For a vendor whose income arrives as deposits, sending each deposit's tax share as it lands is often easier than finding a lump sum on the due date. The post on taxes for client deposits shows how to size that share.
How is the penalty figured?
The penalty works like interest on the shortfall. The IRS underpayment penalty page says it is based on "The amount of the underpayment," "The period when the underpayment was due and underpaid," and "The published quarterly interest rates for underpayments." The IRS quarterly interest rates page lists the 2026 underpayment rate at 7 percent for the first, third and fourth quarters and 6 percent for the second.
A rough illustration: a vendor who pays $1,000 too little on September 15, 2026 and makes it up 91 days later owes about $1,000 × 7 percent × 91 ÷ 365, or roughly $17. The IRS does the exact day count, but the size is the point: a short installment caught early is cheap, and the same shortfall left until April grows every day.
Publication 505 adds that the penalty "is figured separately for each payment period." A large January payment does not erase a short June one. The penalty also has a narrow exit: the underpayment penalty page says it "generally cannot be waived due to reasonable cause," but it may be removed or reduced after "a casualty, local disaster, or other unusual circumstance."
The old version of this post described a penalty of 0.5 percent a month. That figure belongs to a different penalty, for tax not paid with a return, and it is not how the estimated tax penalty is calculated.
What if most of your income comes in one season?
A seasonal vendor can use the annualized income installment method, which lets each required payment follow the income actually earned instead of four equal shares. Equal installments assume income arrives evenly, and a vendor who books mostly in wedding season does not earn that way. Publication 505 says that if you don’t receive your income evenly, "your required estimated tax payment for one or more periods may be less than the amount figured using the regular installment method," and it points to Schedule AI of Form 2210 for the calculation. A vendor whose income lands mostly from May to October can use it to pay less in April and more in September without a penalty for the light early quarters. The worksheet is long, which is a fair reason to stay with the prior year safe harbor when the saving is small.
Choosing between last year's tax and this year's
The prior year figure is the one you can know in advance. Your 2025 return already states the number, so the four installments are fixed on the day you file it, no matter how 2026 goes. It suits a growing business, because a bigger 2026 does not raise what you must pay by each due date. The rest of the tax is still due when you file, so the growth has to be saved for.
The 90 percent figure suits a shrinking year. When bookings drop well below 2025, paying on last year's tax overpays, and a fresh estimate of 2026 lets you send less. The risk is the estimate: if 2026 beats it, the installments fall short.
A simple routine is to start the year on the prior year figure and revisit it in June. The quarterly estimated tax calculator runs both numbers from your own inputs.
Your 2026 underpayment checklist
- Find the total tax on your 2025 return, and check whether your 2025 adjusted gross income was over $150,000.
- Multiply by 100 or 110 percent, divide by four, and put the four dates in your calendar: April 15, June 15 and September 15, 2026, and January 15, 2027.
- Estimate 2026 tax at 90 percent as a second figure, and plan to pay the smaller one.
- Include self employment tax in every estimate, not just income tax.
- If you still draw a paycheck, decide whether extra withholding at that job can cover the gap.
- Move each deposit's tax share into a separate account, or straight to the IRS, the week it arrives.
- If your income is seasonal, look at Schedule AI of Form 2210 before you overpay in April.
- Pay any shortfall as soon as you find it; the penalty is figured by the day.
- Keep each payment confirmation with your records for the year.