CashoutGlossary / Estimated tax safe harbor
Estimated tax safe harbor
The rule that you avoid the underpayment penalty if withholding and on-time estimated payments cover 90% of this year's tax or 100% of last year's.
The safe harbor tells you how much you need to pay during the year to avoid the underpayment penalty, even if you still owe money when you file. For 2026, your withholding plus on-time estimated payments need to cover the smaller of:
- 90% of the tax on your 2026 return, or
- 100% of the tax on your 2025 return, or 110% if your 2025 AGI was over $150,000 ($75,000 if you're married filing separately for 2026).
The prior-year option is the one that helps tipped and gig workers with uneven income. You already know last year's number, so you can pay a quarter of it by each due date and stop guessing. And if you expect to owe less than $1,000 after withholding and refundable credits, you generally don't need estimated payments at all.
If your income is lumpy, like a big summer season, the annualized income method on Form 2210 may lower or remove the penalty with unequal payments.
Common mistake: paying it all on the last due date. The penalty is figured for each installment. Withholding, though, is treated as paid evenly through the year unless you elect otherwise, so extra W-4 withholding late in the year can cover an earlier shortfall in a way a late estimated payment can't.
Related terms
Quarterly estimated tax · Withholding and Form W-4 · Self-employment tax
