The Estimated Tax Safe-Harbor Rule, Explained

Updated 2026-10-13 · Not tax advice

The IRS charges an underpayment penalty when you don’t pay enough tax during the year. Under the rules in IRS Publication 505 and the Form 1040-ES instructions, you generally won’t owe it if:

1. You owe less than $1,000 after withholding and refundable credits, or
2. You paid, on time, at least the smaller of:
   • 90% of the tax shown on this year’s return, or
   • 100% of the tax shown on last year’s return (it must have covered all 12 months).

The 110% rule for higher incomes

If your AGI last year was more than $150,000 ($75,000 if married filing separately), replace 100% with 110% of last year’s tax. Source: IRS Topic 306, Penalty for underpayment of estimated tax.

Example (illustrative)

Last year’s total tax was $12,000, and your AGI was under $150,000. Paying $3,000 on each of the four due dates (100% of last year) generally meets the safe harbor, even if this year’s tax turns out higher. You still owe any balance by the April filing deadline.

Why it matters for freelancers

Income often swings from year to year. Basing payments on last year’s tax gives you a known, penalty-safe number while you track this year’s actual profit.

Compare both approaches with the free calculator, and see the projected 2027 due dates.

FAQ

What is the safe-harbor rule for estimated taxes?

You generally avoid the underpayment penalty if your withholding and timely estimated payments total at least the smaller of 90% of this year's tax or 100% of last year's tax (110% if last year's AGI was over $150,000, or $75,000 if married filing separately).

Do I owe a penalty if I owe less than $1,000?

Generally no. You don't owe the penalty if you owe less than $1,000 after withholding and credits.