You generally need to make estimated tax payments if you expect to owe at least $1,000 in federal tax for the year after subtracting withholding and credits. California sets a lower bar: $500, or $250 if married filing separately. The tax system is pay as you go, so income with no tax taken out still has to be paid for during the year, not only in April.
Who usually needs to make estimated payments?
Anyone whose income doesn’t have enough tax withheld can owe estimated payments. The IRS estimated taxes page names sole proprietors, partners, and S corporation shareholders, and notes the payments cover self-employment tax as well as income tax. Common situations:
- You freelance, consult, or run a business that pays you without withholding.
- You own an S corporation and take distributions on top of payroll. The salary you pay yourself as an S corp owner sets how much is withheld and how much is left to cover.
- You collect rent from a property.
- You sold stock, a business, or real estate at a large gain.
- You take IRA withdrawals or a pension with little or no tax withheld.
Employees get a simpler option. The IRS says people who earn wages can avoid estimated payments by asking their employer to withhold more on a new Form W-4.
How much do I have to pay to avoid a penalty?
To avoid the federal penalty, your withholding and estimated payments generally have to cover the smaller of 90% of this year’s tax or 100% of last year’s tax. These targets are called safe harbors, meaning amounts that protect you from the underpayment penalty even if you still owe more when you file.
Last year’s number is usually the easier target because you already know it. Higher earners face a bigger one: if the adjusted gross income on last year’s return was more than $150,000 ($75,000 if married filing separately), the prior-year safe harbor rises to 110%.
Here’s a 2026 example. A freelance designer had $12,000 of federal tax on their 2025 return, with adjusted gross income of $120,000. They expect $18,000 of tax for 2026.
- 90% of this year’s $18,000 is $16,200.
- 100% of last year’s $12,000 is $12,000.
- The smaller amount, $12,000, is the target: four payments of $3,000.
If their 2025 adjusted gross income had been $160,000, the target would be 110% of $12,000, or $13,200, which is $3,300 a payment. Either way, the safe harbor only avoids the penalty. The rest of the 2026 tax is still due with the return in April 2027.
When are the 2026 estimated tax payments due?
Despite the name, the federal payments aren’t truly quarterly. IRS Publication 505 splits 2026 into four uneven periods:
- January 1 to March 31: due April 15, 2026
- April 1 to May 31: due June 15, 2026
- June 1 to August 31: due September 15, 2026
- September 1 to December 31: due January 15, 2027
Filing your 2026 return by January 31, 2027 and paying everything owed lets you skip the January payment.
Each period counts on its own. The IRS says that if you don’t pay enough by each due date, you may owe a penalty even if you’re due a refund when you file. One rule helps: withholding is generally treated as paid evenly through the year, no matter when it actually came out. So someone who falls behind can often catch up by raising withholding late in the year.
How is California different?
California uses the same basic idea with different numbers and a front-loaded schedule. The Franchise Tax Board’s estimated tax page sets these rules:
| Federal | California | |
|---|---|---|
| You generally must pay if you expect to owe | $1,000 | $500 ($250 married filing separately) |
| Current-year safe harbor | 90% | 90% |
| Prior-year safe harbor | 100%, or 110% if prior-year AGI is over $150,000 | Same, using California AGI |
| Current-year AGI of $1 million or more | Prior-year safe harbor still allowed | Must use 90% of current-year tax ($500,000 if married filing separately) |
| How payments are split | Four equal payments | 30%, 40%, 0%, 30% |
California uses the same four due dates but wants nothing in September, so 70% is due by June 15. If the designer’s California target were $4,000, the payments would be $1,200 in April, $1,600 in June, nothing in September, and $1,200 in January.
The $1 million rule matters most in a one-time big year, like selling a business. Last year’s smaller tax no longer protects you in California, so the payments have to track the gain. That’s a situation worth planning with a CPA before the sale closes.
What if my income comes in unevenly?
The IRS lets you avoid or lower the penalty by annualizing, which means sizing each payment to the income you actually earned through that period instead of paying equal amounts. It suits seasonal businesses and anyone with a large gain late in the year. You claim it on Form 2210, and the math is detailed enough that most people have a preparer run it.
The bottom line
If you expect to owe $1,000 or more in federal tax, or $500 in California, after withholding, you generally need estimated payments. Paying 100% of last year’s tax, or 110% for higher earners, on time generally avoids the federal penalty. California wants 70% of its share by June and requires current-year numbers once income reaches $1 million.
Santafino’s CPAs figure estimated payments for clients nationwide, adjust them when income changes during the year, and build them into tax planning and preparation. For California clients with large gains or investment income, Santafino can also coordinate the payments with wealth management.
FAQ
What happens if I miss an estimated tax payment?
You may owe an underpayment penalty for that period, even if you catch up later or get a refund. Pay the missed amount as soon as you can and make the later payments on time. The penalty generally grows with how much was short and how long it stayed unpaid.
Can the IRS waive the estimated tax penalty?
It can in some cases. The IRS may waive it when a casualty, disaster, or other unusual event caused the shortfall, or when you retired after age 62 or became disabled that year or the year before and had reasonable cause. The waiver is requested on Form 2210.
Do I need to pay estimated tax if I owed nothing last year?
Not for federal tax, if you meet all three IRS conditions. You had no tax liability for the prior year, you were a U.S. citizen or resident for that whole year, and that year covered a full 12 months. California applies its own rules, so check them separately.
