Who Must Make Estimated Tax Payments

• Individuals (including sole proprietors, partners, and S corporation shareholders) generally must make estimated tax payments if they expect to owe $1,000 or more when their return is filed. Corporations generally must make estimated payments if they expect to owe $500 or more. Paying as you go helps avoid both underpayment penalties and interest. Estimated taxes

• Self‑employed taxpayers usually need to make estimated payments for both income tax and self‑employment tax (Social Security and Medicare) because there’s no withholding. Use Form 1040‑ES and its worksheet to calculate quarterly payments. Self‑employed individuals tax center | Internal Revenue Service, About Form 1040-ES, Estimated Tax for Individuals

Key Safe Harbors to Avoid the Underpayment Penalty (Individuals)

Individuals can generally avoid the Underpayment of Estimated Tax by Individuals penalty if they satisfy any of these safe harbors:

• Pay at least 90% of the current year’s total tax (including income tax plus applicable taxes like self‑employment tax and Alternative Minimum Tax), or

• Pay 100% of the prior year’s tax (110% if the prior year’s adjusted gross income exceeded $150,000 or $75,000 if married filing separately), or

• Owe less than $1,000 after subtracting withholding and refundable credits on the filed return. Topic no. 306, Penalty for underpayment of estimated tax, Instructions for Form 2210 (2024)

These safe harbors are measured per installment across the year because penalties are computed separately for each quarterly due date (April 15, June 15, September 15, and January 15 of the following year). If you underpay early but later catch up, you may still owe a penalty for the earlier period. Instructions for Form 2210 (2024), Estimated taxes

Special Rules for Farmers and Fishers

If at least two‑thirds (66⅔%) of your gross income for the current or prior year is from farming or fishing, special rules apply:

• You can avoid estimated tax payments altogether by filing and paying your entire tax due by March 1 (March 2 in some tax years when the 1st falls on a weekend/holiday).

• Alternatively, you can make one estimated payment by January 15 based on 66⅔% of current‑year tax or 100% of prior‑year tax (whichever is smaller). Instructions for Form 2210-F (2024), § 6654. Failure by individual to pay estimated income tax

Corporate Safe Harbor and Exception Thresholds

For corporations, the penalty rules differ:

• Corporations must pay quarterly if they expect to owe $500 or more in tax.

• A corporation will not have to pay the underpayment penalty if the tax shown on the filed return is less than $500. Large corporations have special rules limiting reliance on the prior‑year tax for only the first installment. Instructions for Form 2220 (2024), Underpayment of Estimated Tax by Corporations penalty

Quarterly Due Dates and How Penalties Are Calculated

• Individuals: The standard quarterly due dates are April 15, June 15, September 15, and January 15 of the following year. If a due date falls on a weekend or legal holiday, the payment is on time if made the next business day. The IRS counts payments mailed by the due date as timely based on the U.S. postmark. Estimated taxes, 2025 Form 1040-ES

• Corporations: The due dates are the 15th day of the 4th, 6th, 9th, and 12th months of the corporation’s tax year. The penalty is computed per installment period using the underpayment interest rate published quarterly. Instructions for Form 2220 (2024), Quarterly interest rates

The penalty is essentially interest on the underpaid amount for the period it was underpaid, calculated using the IRS underpayment rate and daily compounding. Underpayment rates are based on the federal short‑term rate plus 3 percentage points (higher for large corporate underpayments). Quarterly interest rates, Interest

How to Figure Estimated Payments and Use the Annualized Income Method

• Individuals should use the Form 1040‑ES worksheet to estimate total tax and adjust for expected income, credits, and deductions. This helps determine quarterly payments and reduce or eliminate penalties. About Form 1040-ES, Estimated Tax for Individuals

• If your income is uneven during the year (e.g., seasonal business, sporadic capital gains), consider the annualized income installment method to make lower payments in low‑income quarters and higher payments later. This method can avoid or reduce penalties by aligning installments with actual timing of your income. File Form 2210 with Schedule AI if using this method. Estimated taxes, Instructions for Form 2210 (2024)

Corporations may also use the annualized income installment method or adjusted seasonal installment method by completing Schedule A of Form 2220; large corporations should follow special rules when relying on prior-year tax for the first installment. Instructions for Form 2220 (2024)

Adjusting Withholding to Avoid Penalties

If you receive wages, pensions, or certain government payments, increasing withholding can be a simpler alternative to making estimated payments. You can file a new Form W‑4 with your employer, or use Form W‑4P/W‑4R for pensions and nonperiodic distributions, or Form W‑4V for voluntary withholding on certain government payments. Withholding is treated as paid evenly throughout the year unless you elect otherwise, which can help avoid penalties even late in the year. Pay as you go, so you won't owe, Estimated taxes

How to Pay Estimated Taxes to Avoid Penalties

• Online options (Direct Pay, Online Account, debit/credit card, EFTPS) offer timely, secure payments and real‑time confirmation. You can also pay by phone, IRS2Go mobile app, or mail with vouchers from Form 1040‑ES. Make sure payments are credited by each installment due date to avoid penalties for that period. Estimated taxes, 2025 Form 1040-ES

• Businesses can pay most common business taxes through a business tax account or Direct Pay for businesses; some taxes still require EFTPS. Estimated taxes

Penalty Computation Basics and Interest

• The penalty for underpayment of estimated tax is calculated based on the amount of the underpayment, the period it remained underpaid, and the quarterly underpayment interest rate set by the IRS. Interest on penalties also accrues until paid in full. The IRS provides quarterly tables and compounding rules, and the interest rate does not retroactively change for prior quarters. Underpayment of estimated tax by individuals penalty, Quarterly interest rates, Interest

• If the IRS determines you owe a penalty, you’ll receive a notice explaining the amount and how it was computed. If you pay by the “pay by” date on the notice, additional interest on the penalty will not be charged. Topic no. 653, IRS notices and bills, penalties and interest charges

Common Strategies to Avoid or Reduce the Penalty

• Use safe harbors: If your income is rising, consider paying 100% of last year’s tax (110% if high‑income) to lock in the prior‑year safe harbor regardless of the current year’s outcome. Instructions for Form 2210 (2024)

• Annualize income: If your income is lumpy, adjust quarterly payments using Schedule AI to reflect when income occurs and avoid penalties for earlier periods. Instructions for Form 2210 (2024)

• Increase withholding late in the year: Withholding is treated as paid evenly throughout the year (unless you choose actual date allocation), so boosting December withholding can help avoid penalties for earlier quarters. Estimated taxes

• Make catch‑up payments promptly: If you discover an underpayment, pay immediately to stop penalty interest accrual; installment penalties are computed only until the earlier of payment date or the cutoff date (generally April 15). Underpayment of estimated tax by individuals penalty

Waivers and Relief from the Underpayment Penalty

The IRS will consider waiving all or part of the penalty in certain circumstances:

• Casualty, disaster, or other unusual circumstances where imposing the penalty would be inequitable. If you’re in a federally declared disaster area, the IRS typically identifies eligible taxpayers and applies automatic relief during processing; do not file Form 2210 solely for disaster relief. Instructions for Form 2210 (2024), Penalty relief

• Reasonable cause due to retirement (after reaching age 62) or disability in the current or preceding tax year, when the underpayment was due to reasonable cause, not willful neglect. Use Form 2210 to request a waiver by checking the appropriate box and attaching a statement and documentation. Instructions for Form 2210 (2024)

While estimated tax penalties are generally not removed for “reasonable cause” alone, disaster‑related waivers and the retirement/disability exception can apply. You may also seek penalty relief via first‑time abatement or reasonable cause for certain other penalties, but the underpayment of estimated tax relief follows the specific rules noted above. Penalty relief, Underpayment of estimated tax by individuals penalty

Practical Examples

• Safe harbor example: If last year’s total tax was $18,000 and your AGI was under $150,000, paying $4,500 each quarter (25% of $18,000) meets the 100% prior‑year safe harbor—even if your current year’s tax ultimately ends up higher—so you should avoid an underpayment penalty. Instructions for Form 2210 (2024)

• High‑income prior‑year safe harbor: If last year’s AGI exceeded $150,000 and your total tax was $30,000, paying $33,000 for the current year (110%) divided evenly by quarter protects you under the high‑income safe harbor. Instructions for Form 2210 (2024)

• Annualized income example: A seasonal business with low income in Q1 and Q2 but high income in Q3 can use Schedule AI to reduce Q1/Q2 installments and increase later ones, potentially avoiding penalties for the first half of the year. File Form 2210 with Schedule AI to show the computation. Instructions for Form 2210 (2024)

How to Check and Correct Midyear

• Use Publication 505 and Form 1040‑ES worksheets to re‑estimate tax midyear; if underpaid, make a catch‑up payment immediately and consider switching to the annualized method for remaining installments. Estimated taxes, About Publication 505, Tax Withholding and Estimated Tax

• Monitor IRS quarterly interest rates and your Online Account to confirm payments applied as intended. Quarterly interest rates, Estimated taxes

What If You Receive a Penalty Notice?

• Verify amounts and dates of your payments and withholding. If you used a safe harbor or annualized method correctly, you can ask the IRS to adjust the penalty using Form 2210 (for individuals) or Form 2220 (for corporations). Topic no. 653, IRS notices and bills, penalties and interest charges, Underpayment of estimated tax by individuals penalty, Underpayment of Estimated Tax by Corporations penalty

• For disaster relief or retirement/disability waivers, attach supporting documentation per the Form 2210 instructions; interest on penalties stops accruing if you pay by the notice’s “pay by” date, and penalty relief may reduce the related interest automatically. Instructions for Form 2210 (2024), Penalty relief, Interest

Summary Checklist to Avoid Penalties

• Determine if you must make estimated payments (>$1,000 expected balance due for individuals; >$500 for corporations). Estimated taxes

• Choose a safe harbor (90% current year or 100%/110% prior year) and pay evenly by quarterly due dates, or annualize if income is uneven. Topic no. 306, Penalty for underpayment of estimated tax, Instructions for Form 2210 (2024)

• Consider increasing withholding as a practical alternative—especially late in the year. Pay as you go, so you won't owe

• Use reliable payment methods (Direct Pay, Online Account, EFTPS) and confirm receipt by each installment due date. Estimated taxes

• If eligible, use special rules (farmers/fishers) and waivers (disaster or retirement/disability) to request penalty relief. Instructions for Form 2210-F (2024), Penalty relief

By planning your payments using the safe harbors, aligning installments with the timing of income, and using withholding strategically, you can reliably avoid underpayment penalties and interest while meeting your tax obligations efficiently. For full details and worksheets, see the IRS resources linked above (Form 1040‑ES, Publication 505, Form 2210 instructions, and the estimated tax pages). About Form 1040-ES, Estimated Tax for Individuals, About Publication 505, Tax Withholding and Estimated Tax, Instructions for Form 2210 (2024), Estimated taxes