Estimated tax for owners with uneven income

Estimated tax is simple when income arrives evenly. You divide the year's tax by four and pay on four dates. Owners of a business rarely have that year. A contractor collects on two large jobs in the fall. A consultant bills most of the year's work in the last quarter. An S corporation owner takes a distribution after the busy season. The rules allow for this, and they reward a bit of planning.

Who has to pay

In most cases, you pay estimated tax for 2026 if you expect to owe at least $1,000 after withholding and refundable credits, and you expect your withholding and credits to be less than the smaller of:

• 90% of the tax on your 2026 return, or

• 100% of the tax on your 2025 return, if that return covered all twelve months.

If your adjusted gross income for 2025 was more than $150,000, or more than $75,000 if you file as married filing separately for 2026, the second figure is 110% of last year's tax.

The 2026 dates

The periods are uneven, which surprises people. The second payment covers two months and the fourth covers four. You can skip the January 15, 2027 payment if you file your 2026 return by February 1, 2027 and pay the full balance with it.

Option one: pay to last year's tax

The prior-year safe harbor is the plainest way to avoid the underpayment penalty. You take last year's total tax, or 110% of it at the higher income level, divide by four and pay on the four dates. If this year turns out larger, you owe the difference in April with no underpayment penalty.

This suits an owner whose income is growing and hard to predict. It needs one number, and that number is already on last year's return. The trade-off is cash: in a year when income falls, you pay more during the year than the tax requires and wait for the refund.

Option two: pay as the income arrives

The annualized income installment method matches each required payment to the income you earned in that period. If most of your profit lands between September and December, most of your required payment lands in January. You figure it on Schedule AI of Form 2210 and file that form with your return to show the calculation.

This method needs books that close each period, because the calculation runs on income and deductions as of March 31, May 31, August 31 and December 31. For clients whose books we keep, those figures already exist. For others, it is one more reason to close the month on time.

Option three: adjust withholding

For estimated tax purposes, federal income tax withheld from wages is treated as paid in four equal parts on the due dates, unless you choose to use the dates it was withheld. An S corporation owner who draws a salary can raise withholding on the last payrolls of the year, and the IRS treats that withholding as spread across all four periods. It is the one late payment that counts as early, and it often repairs an underpaid first half without a penalty.

The same applies to a spouse's wages on a joint return. A new Form W-4 with an additional amount per paycheck does the work.

How the penalty works

The underpayment penalty applies to each installment separately, for the number of days it stays unpaid. It works like interest on a short loan. A payment that is two weeks late costs two weeks of penalty on that amount, and a larger payment on the next due date stops the clock for the earlier period. There is no reason to skip a later payment because an earlier one was missed.

Paying

We recommend paying online at IRS.gov. The payment date is clear and the confirmation is immediate. If you mail a check, the 2026 Form 1040-ES notes that the postmark date is the date a postal facility processes the envelope, which may be later than the day you drop it off. Mail early or pay electronically.

What we do in practice

We set each owner's four payments at the start of the year from the prior-year figure. In late August we review the books through July and decide whether the September and January payments should change. When a large sale or a one-time job lands, we run the annualized figures and adjust. The review is a short call, and it keeps April free of surprises about the payment.