How much to pay in estimated taxes.

1Step 1: Check whether you need to pay

Look at last year's return. If your preparer included Form 1040-ES vouchers or a schedule of estimated payments, they expect you to pay. In general, if you expect to owe $1,000 or more when you file, after withholding and refundable credits, the IRS expects estimated payments. Most states have their own, lower threshold. You probably need to pay if any of these apply:

• You are self-employed, a 1099 contractor, or a partner in a partnership.
• You own an S corporation and take distributions on top of a modest salary.
• You sold stock, a business, or real estate at a gain, or your RSUs and bonuses were withheld at a flat 22%.

2Step 2: Find last year's numbers

From last year's federal and state returns, write down two numbers:

• Total tax. The total tax line on your Form 1040, which includes self-employment tax and the net investment income tax. It is not your balance due, and it is not your income tax alone. Do the same for your state return.
• Adjusted gross income (AGI). It decides which safe harbor you use in the next step.

3Step 3: Pick your safe harbor

You do not need to predict your tax bill to the dollar. If your withholding plus timely estimates add up to the smaller of these, you owe no underpayment penalty, even if you end up owing a large balance in April:

• 100% of last year's total tax, rising to 110% if last year's AGI was over $150,000 ($75,000 if married filing separately), or
• 90% of this year's tax.

The prior-year rule is the one I use most. Last year's tax is a known number, so you can divide it into four payments in January and be done thinking about it. It works especially well in a year when income is rising: you pay a predictable amount through the year and settle the difference when you file.

4Step 4: Subtract your withholding

Tax withheld from a paycheck or an IRA distribution is treated as paid evenly throughout the year, no matter when it was actually withheld. Estimated payments only count from the day you make them. So use withholding first, and cover whatever is left with estimates:

• W-2 employees with side income can raise withholding with a new Form W-4 and skip estimates entirely.
• S corporation owners can run extra federal and state withholding through payroll late in the year to cover a shortfall.
• A spouse with a W-2 job can increase their withholding to cover the household's estimate on a joint return.
• Retirees over 59½ can take an IRA distribution in December, have a large share withheld for taxes, and the IRS treats it as if it were paid evenly since January.

5Step 5: Split the rest and set your dates

Divide what is left into four federal payments on these dates:

A deadline on a weekend or federal holiday moves to the next business day. The next payment due is the fourth installment for 2026, on Friday, January 15, 2027. Most states use the same dates, but California splits the year 30/40/0/30 (see California).

Put reminders on your calendar for April 5, June 5, September 5, and January 5. Ten days is enough time to check the amount, move cash, and pay at least two business days early, before the government sites get busy.

Example

A self-employed consultant had 2025 AGI of $260,000, total federal tax of $48,000, and California tax of $18,000. Their AGI was over $150,000, so they use 110% of last year for both: $48,000 × 110% = $52,800 federal, split into four, and $18,000 × 110% = $19,800 California, split 30/40/0/30.

If their income doubles this year, they still owe no penalty, though they should set the extra aside for April.

6Step 6: Open a tax savings account

Move a set percentage of every client payment, distribution, or sale into a separate account the day the money arrives. A high-yield savings account works well: the money earns interest until it is due, and you never have to wonder whether the balance in checking is really yours.

7Step 7: Pay each installment

Pay the IRS and your state separately; neither payment covers the other. Follow the federal guide for IRS Direct Pay, then your state's guide.

8Step 8: Set aside more after a big sale

When a large, one-time amount hits, such as stock sold after an IPO, a bonus, a business sale, or exercised options, set aside tax from it right away. For high earners, a quick estimate uses top marginal rates:

So on a $100,000 short-term gain, set aside about $37,000 for federal tax and $13,300 for California, roughly $50,300 in total. The same $100,000 as a long-term gain needs about $23,800 federal (20% plus the 3.8% net investment income tax) and $13,300 for California, roughly $37,100. California taxes capital gains as ordinary income, which is why the state column does not change. These are top rates, so they lean conservative; your real rate may be lower, and income outside California follows your own state's rates. Withholding on bonuses and RSUs often happens at a flat 22% federal, which leaves a gap for high earners: set aside the difference.

Which payment it belongs in

If you are covered by the prior-year safe harbor, you can keep the set-aside in savings and pay it with your return. If you are not, pay the tax in the installment that covers the period of the sale: a March sale is due by April 15, and a November sale belongs to the January 15 payment. When most of your income lands late in the year, the annualized income installment method on Schedule AI of Form 2210 shows the IRS when you actually earned it, so earlier quarters are not penalized. You or your preparer calculate it when you file.

9Step 9: Run a projection in the fall

By October or November you know most of the year's income. Project the actual bill, then use the January payment (or extra withholding in December) to close the gap, or simply confirm the tax savings account will cover April.

10Step 10: Check for moves and equity pay

• If you moved this year, the new state can expect tax on income you earn there right away. Employers do not always update state withholding promptly, so check your pay stub. If the new state is not being withheld, pay it directly through its payment site (see state guides) and keep paying your former state only on income earned while you lived there or still sourced to it, such as a business located there. A large sale shortly before or after a move deserves a careful look at which state gets to tax it.
• If you have stock options or RSUs earned while you worked in one state and paid out after you moved to another, both can tax them. California, for example, generally taxes the share of options or RSUs tied to workdays spent in California, even after you leave. The rules vary by state and by type of equity, so work through this with a tax professional before the sale, not after.

11Step 11: If you missed a payment, pay it now

The penalty works like interest: it is charged on the amount you were short, for the number of days you were short, at the IRS underpayment rate. That rate is the federal short-term rate plus three percentage points, reset each quarter. For the fourth quarter of 2026 it is 7%.

So if you were $20,000 short on your June payment and caught up six months later, the cost would be roughly $20,000 × 7% × ½ year, or about $700. That is real money, and it is not deductible. It is also not a catastrophe: pay as soon as you can, because every day you wait adds a little more. The IRS can waive the penalty in limited cases, such as a casualty or disaster, or if you retired after age 62 or became disabled during the year or the year before and the underpayment was due to reasonable cause.

12Step 12: After you file, leave overpayments on account

If you overpay, apply the refund to next year instead of taking it in cash. It counts as paid on April 15 and can cover your entire first installment, so the new year starts already on track.

Quarterly checklist

Once, in January

• Pull last year's total federal and state tax and AGI.
• Pick a safe harbor (see step 3).
• Calculate each federal and state installment.
• Schedule your federal payments in Direct Pay and your state payments on its site.
• Create this year's “Estimated Taxes” folder and log.

A week before each deadline

• Confirm the scheduled payment is still correct, or make it now.
• Check the bank account has the cash.
• Think about anything big that happened this quarter: a sale, bonus, or new contract.
• Save the confirmation and update the log.

When you file

• Compare your log to your IRS and state account history.
• Send the log to your preparer.
• Decide whether to apply any refund to next year's estimates.

This guide is for general education and reflects rules as of October 2026. Tax law and agency websites change, and your situation may have details that change the answer. Please talk with your tax professional before acting on it.