How much to pay in estimated taxes.

Do you need to pay?

If you expect to owe $1,000 or more when you file, after withholding and refundable credits, the IRS generally 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%.

The fastest check is last year's return. If your preparer included Form 1040-ES vouchers or a schedule of estimated payments, they expect you to pay.

Deadlines

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).

How much to pay

You do not need to predict your tax bill to the dollar. The tax code includes “safe harbors”: if you pay at least a set amount on time, you owe no underpayment penalty, even if you end up owing a large balance in April.

The federal safe harbors

You avoid the penalty if your withholding plus timely estimates add up to the smaller of:

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

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.

“Total tax” means 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.

California's version

California uses the same 90% and 100%/110% tests, with one important exception: if your California AGI is $1 million or more this year, you cannot use the prior-year safe harbor. You have to pay 90% of the current year's tax, which means estimating it. A large business sale or stock liquidation can push you over that line, so plan for it before the sale closes.

A worked example

A self-employed consultant had 2025 adjusted gross income 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.

Federal: $48,000 × 110% = $52,800, split into four. California: $18,000 × 110% = $19,800, 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.

When your income is lumpy

The standard rules assume you earn evenly through the year. If most of your income lands late, such as a December bonus or a fourth-quarter sale, the annualized income installment method lets you match payments to when you actually earned the money. You (or your preparer) calculate it on Schedule AI of Form 2210 when you file. It takes more work, but it can eliminate a penalty that the regular method would charge.

The reverse also matters: if you sell a large position in March, the 90% current-year test means the tax on that gain is due by April 15, not next April. The prior-year safe harbor can cover you, but only if you qualify for it and pay it on time.

What the penalty actually costs

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. If you missed a payment, the best move is to pay it as soon as you can: 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.

A simple system for the year

Estimated taxes go wrong when they are handled one panicked deadline at a time. A little structure in January makes the rest of the year boring, which is the goal.

1. Start from a safe harbor. Cover 100% of last year's total tax (110% if your AGI was over $150,000) through a mix of paycheck withholding and quarterly payments. That removes the penalty risk no matter what happens to your income.
2. Use withholding first. If you have a paycheck, from your own S corporation or a spouse's job, withholding is the easiest way to pay because it happens automatically and counts as paid evenly through the year. Cover whatever is left with quarterly payments.
3. Open a separate tax savings account. Move a set percentage of every client payment, distribution, or sale into it 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.
4. Set reminders 10 days before each deadline. Put April 5, June 5, September 5, and January 5 on your calendar. Ten days is enough time to check the amount, move cash, and pay before the government sites get busy.
5. 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.
6. 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.

Setting aside tax on 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, the most useful question is how much of it to set aside. 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 quarter to pay it 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 November sale belongs to the January 15 payment, and the annualized income method on Form 2210 shows the IRS the income arrived late in the year, so earlier quarters are not penalized.

Using withholding instead

Here is a rule many people never hear: 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.

That makes withholding a useful catch-up tool:

• 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.
• 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.

If a spouse has a W-2 job, increasing their withholding can cover the household's estimate on a joint return.

Moving states and equity pay

If you moved this year

After a move, 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 Payment links) 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.

Stock options and RSUs across state lines

Equity compensation earned while you worked in one state and paid out after you moved to another can be taxed by both. 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 this is worth working through with a tax professional before the sale, not after.

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.