Riya will owe about $14,803 in federal tax for 2026, but the amount she had to pay during the year to avoid an underpayment penalty is only $5,200: the total tax on her 2025 return. She paid nothing in April, June or September. One payment on January 15 will not erase the penalty for those three periods, but paying the missed amounts now limits it, and she does not need to find $14,803 by January to stop the damage.
Riya is invented. The rules and the arithmetic are not. The rules come from IRS Publication 505 (2026 edition). Her 2026 tax is calculated with the same 2026 values and functions the site's calculators use.
Riya's year
- Single. Left a salaried job at the end of 2025 and has freelanced full time since January 1, 2026.
- $72,000 expected net profit on Schedule C for 2026. No wages, no withholding.
- Her 2025 return covered the full year and showed $5,200 of total tax, all of it paid through payroll withholding. Her 2025 AGI was well under $150,000.
- She made no estimated tax payments for the periods due April 15, June 15 and September 15, 2026.
What she will owe for 2026
| 2026 | |
|---|---|
| Schedule C net profit | $72,000 |
| Self-employment tax | $10,173 |
| Deductible half of SE tax | $5,087 |
| Standard deduction (single) | $16,100 |
| QBI deduction | $10,163 |
| Taxable income | $40,651 |
| Income tax | $4,630 |
| Total federal tax | $14,803 |
Self-employment tax is charged on 92.35% of net profit, which is why it is the biggest line. With no employer withholding anything, every dollar of this has to come from her.
The number the penalty is measured against
Publication 505 says the total you must pay during the year, through withholding and estimated tax, to avoid a penalty is the smaller of:
- 90% of your total expected tax for 2026, or
- 100% of the total tax shown on your 2025 return, if that return covered all 12 months. If your 2025 AGI was more than $150,000 ($75,000 married filing separately), the figure is 110%.
For Riya:
| Amount | |
|---|---|
| 90% of her 2026 tax ($14,803) | $13,323 |
| 100% of her 2025 tax | $5,200 |
| Required annual payment (the smaller) | $5,200 |
| Required for each of the four periods ($5,200 ÷ 4) | $1,300 |
That is the part most people miss in their first year of self-employment. A low tax bill on last year's W-2 return sets a low bar for this year's payments, even when this year's tax is almost three times higher. The prior-year route needs no forecast at all.
What it does not change: the rest of the $14,803 is still due. Paying $5,200 during the year protects her from the underpayment penalty; the remaining $9,603 is paid with her return.
What the January 15 payment fixes, and what it doesn't
The penalty is figured separately for each payment period. Publication 505 says so directly, and adds that you can be charged a penalty for a period even if you are due a refund when you file. Riya's three missed periods each had a $1,300 requirement that went unpaid on its due date. A large payment in January makes the fourth period whole. It does not travel back in time to April, June or September.
The penalty runs until the shortfall is paid. In Publication 505's own example, someone who paid no estimated tax and paid the balance on January 26 owed any penalty for the first three periods "figured up to January 26." The sooner the missing amounts are paid, the shorter the period the penalty runs for.
So Riya's practical plan, in mid-November:
- Pay the three missed installments now: $3,900. That stops the shortfall growing for April, June and September from today rather than from January.
- Pay the fourth installment, $1,300, by January 15, 2027. That is the due date for the September 1 to December 31 period.
- Set aside the rest. The remaining $9,603 is due with her return. Paying more now is allowed and makes April easier, but it is not what stops the penalty.
The January 31 alternative
Publication 505 offers one more route: if you file your 2026 Form 1040 by January 31, 2027 and pay the rest of the tax you owe, you don't need to make the January 15 payment. It helps only with the fourth period. Penalties for the first three periods are still figured, up to the date you pay. For most freelancers it is also hard to do, because 1099s and year-end statements are still arriving in late January.
When the rules work differently
- Income that arrived late in the year. If your income was much larger in the second half, the annualized income installment method can lower the required payment for the early periods. You figure it with Publication 505's Worksheet 2-9 and must file Form 2210 with your return. It doesn't help Riya, whose income came in evenly, but it can help someone who landed most of their work after the summer.
- No taxable income until later. You don't have to make estimated payments until you have income on which you will owe tax. If you first had such income after August 31, your first payment is the one due January 15. That is the situation in James's case, who started freelancing in October.
- No tax at all last year. You don't have to pay estimated tax for 2026 if you had no tax liability for 2025, were a US citizen or resident alien all year, and your 2025 tax year covered 12 months.
- Under $1,000. If you expect to owe less than $1,000 for 2026 after withholding and credits, estimated payments are not required.
- Higher earners. With 2025 AGI over $150,000, the prior-year figure becomes 110% of last year's tax. The safe harbor guide covers that case.
Next year starts higher
Riya's cheap safe harbor is a one-time effect. For 2027, the prior-year figure will be her 2026 tax. With 2026 AGI of about $66,913, under the $150,000 line, 100% of $14,803 works out to about $3,701 per quarter in 2027 if she uses the prior-year route, compared with $1,300 this year. If 2027 profit drops, 90% of the new year's tax may be the smaller figure instead, so it is worth recalculating each quarter.
Frequently Asked Questions
I missed my first three 2026 estimated tax payments. Is it too late?
No. Pay the missed amounts as soon as you can. The penalty is figured separately for each period and runs until the shortfall is paid, so paying in November leaves less penalty than paying in January. Then make the fourth payment by January 15, 2027.
Does paying everything by January 15 avoid the penalty?
Only for the fourth period. Publication 505 says the penalty is figured separately for each payment period, so periods that were underpaid on their due dates can still carry a penalty, even if you are due a refund when you file.
How much did I have to pay during 2026 to avoid the penalty?
The smaller of 90% of your 2026 tax or 100% of the tax on your 2025 return (110% if your 2025 AGI was over $150,000, or $75,000 married filing separately). Your 2025 return has to cover all 12 months. Divide by four for each period if your income comes in evenly.
Can I skip the January 15 payment?
Yes, if you file your 2026 return by January 31, 2027 and pay all the tax you owe with it. Any penalty for earlier periods is still figured up to the date you pay.
I started freelancing in the fall. Did I miss earlier payments?
Not necessarily. You don't have to make estimated payments until you have income on which you will owe tax. If that income started after August 31, 2026, your first payment is due January 15, 2027.
How much is the penalty?
It depends on how much each period was short and for how long. It is figured with Form 2210 and its instructions. Because it grows with time, the most useful thing you can do is pay the shortfall sooner.
Run your own numbers
Put your expected 2026 profit into the Quarterly Tax Estimator to see your total federal tax, then compare 90% of it with the total tax on your 2025 return. The smaller number, divided by four, is what each period needed. The complete guide to paying quarterly taxes covers how to send the payment.
Educational content, not tax advice. Figures are 2026 federal amounts for a single filer with no other income, calculated with the same constants the site's calculators use. State estimated tax rules are separate and not included.