As 2025 comes to a close, it's time to review your tax situation for the upcoming year. If your income isn't fully covered by withholding, your first quarterly estimated tax payment for 2026 will be due early in the new year. Evaluating your numbers now can help you avoid penalties. Myrick CPA assists clients nationwide with year-end projections for easier management.
Who Needs to Make Estimated Tax Payments
The IRS requires estimated tax payments from individuals whose tax withholding does not fully cover their tax liability; this typically includes freelancers, contractors, gig workers, small business owners, and those receiving rental or investment income. Estimated taxes cover income tax, self-employment tax, and other federal taxes, making accurate planning essential.
How the Safe Harbor Rules Help You Avoid Penalties
The IRS safe harbor rules give you a clear target to avoid underpayment penalties. In most cases, you will not owe a penalty if you pay at least 90 percent of your 2026 total tax or 100 percent of your 2025 tax. If your adjusted gross income for 2025 is higher than $150,000 the safe harbor increases to 110 percent of your prior year tax.
You also avoid a penalty if your total tax after withholding is less than $1,000. These rules offer predictability, especially when your income changes from year to year.
Plan for Q1 2026 Before the Year Ends
Quarterly payments are based on your annual earnings, and changes in income in late 2025 can affect your first payment for 2026. Now is a good time to review your finances, as bonuses or strong business performance can change your expected tax liability.
If you anticipate a balance due next spring, consider adjusting your tax withholding before December 31. This small increase can reduce or eliminate the need for a large first-quarter payment. For the self-employed, updating income projections will clarify what you owe by the January deadline.
Strategies to Reduce or Eliminate Estimated Tax Penalties
To avoid penalties, track your non-wage income throughout the year. Review your retirement contributions, Health Savings Account (HSA), and charitable deductions to adjust your estimated tax liability.
If you expect a higher income in early 2026, consider adjusting your first payment now to prevent a shortfall. Business owners should also assess planned equipment purchases, payroll changes, and year-end expenses, as these affect your projected taxes.
FAQs
How do I know if I need to make estimated payments in 2026? You may need to pay if your withholding will not cover your full tax liability. A CPA can review your income sources and confirm your requirements.
What if I underpay earlier in the year? The IRS may charge a penalty even if you expect a refund. Safe harbor rules help you determine whether you are on track.
Do the payment dates change? Quarterly deadlines are generally April 15, June 15, September 15, and January 15. Dates may shift slightly when they fall on weekends or holidays.
Can I replace quarterly payments by adjusting withholding? Sometimes. Increasing your withholding before year-end can reduce or eliminate your estimated payment responsibility.
Implement a Strong Financial Start to 2026
Quarterly planning helps you stay ahead of penalties and maintain healthier cash flow. If you are seeking clarification on the scope of your 2026 estimated payments, precise detailed tax projections from an expert CPA will help keep your tax strategy on track.
Contact us to schedule a virtual year-end financial review.
