Estimator
What should you send the IRS this quarter?
Underpayment penalties are avoidable, and you do not need to predict your income perfectly to avoid them. You need to clear one of two tests, and withholding counts differently from an estimated payment.
Your numbers
Refine the estimate
Withholding and estimates are separated because the IRS treats their timing differently.
Payment per remaining quarter
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- Prior-year safe harbor
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- 90% of this year’s projection
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- Required for the year
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- Less withholding
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- Less estimates already sent
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- Still to pay
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- Rough penalty if skipped entirely
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Payment schedule
| Due | Amount | Status |
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Read this part
What this still leaves out
A number without its assumptions is worse than no number. Here is what the model does not reach.
- Uneven income. The schedule spreads the requirement evenly. If your income is seasonal or the business started mid-year, the annualized installment method usually lowers the early payments and is worth the extra work.
- Exact penalty arithmetic. The figure shown applies the federal underpayment rate to the shortfall for roughly half a year. The real calculation runs per quarter from each due date, and the rate is reset quarterly.
- State rules. The state figure is divided evenly across the remaining dates. States set their own thresholds, safe harbors, and deadlines, and several do not match the federal ones.
- What you will actually owe. Clearing a safe harbor avoids the penalty. It does not mean the bill is paid, and the balance is still due at filing.
If your income arrives unevenly, the annualized method is the single change that most often reduces what you have to send early in the year. It is one of the things worth handling during the year rather than discovering at filing.
The mechanism
Two tests, and why withholding is the useful lever
The IRS charges an underpayment penalty when too little has been paid in through the year. You avoid it by clearing either of two tests, whichever is cheaper for you, so the calculator takes the lower.
The first is the prior-year safe harbor: pay in 100% of last year’s total tax, or 110% if last year’s adjusted gross income was above $150,000. Its value is certainty, because last year’s number is already known and a good year now cannot create a penalty.
The second is the current-year test: pay in 90% of what you will actually owe. That is cheaper in a year going worse than the last one, but it depends on the projection being right.
Withholding is the lever most owners miss. Estimated payments are credited on the date you send them, so a shortfall early in the year keeps accruing penalty even if you catch up later. Withholding is treated as paid evenly across the whole year no matter when it was withheld, so increasing withholding on your own or a spouse’s paycheck in the autumn can repair a shortfall from January.
The longer explanation, including what changes once you run payroll
Common questions
Before you act on the number
The penalty works like interest on the shortfall from the date the payment was due, so it accrues rather than landing as a flat fine. Skipping one quarter and catching up costs less than skipping all four, but it still costs. Withholding is the exception, because it is treated as paid evenly across the year regardless of when it actually happened.
It is 110% if your adjusted gross income on last year's return was above $150,000, and 100% otherwise. The threshold is $75,000 if you are married filing separately. The calculator picks the right one from the prior-year AGI and filing status you enter.
Often not, and that is worth knowing. Withholding counts toward the same safe harbor, so raising withholding on your own or a spouse's paycheck can cover business income without writing quarterly checks at all. Because withholding is treated as paid evenly, it can also fix a shortfall late in the year in a way an estimated payment cannot.
It works, but it will usually ask for more early in the year than you strictly owe. The annualized income installment method lets you pay in proportion to income as it is actually earned, which suits businesses with a heavy season. It takes more record keeping and a form at filing, and for a genuinely lumpy year it is normally worth it.
For a calendar-year taxpayer the federal dates are usually April 15, June 15, September 15, and January 15 of the following year, shifting when one falls on a weekend or holiday. The second and third are two and three months apart rather than a true quarter, which catches people out.
Not sure which test you are relying on?
We set estimates during the year rather than discovering the gap at filing.