— Benjamin Franklin, Poor Richard Improved (1758).

Estimated tax is designed for income that is not fully covered by withholding. That may include business profit, independent-contractor income, partnership or S corporation income, rent, interest, dividends, capital gains, prizes, and retirement income. The calculation can include regular income tax, self-employment tax, alternative minimum tax, net investment income tax, and other amounts expected on the individual return.

The 2026 Form 1040-ES worksheet begins with expected adjusted gross income. From there, you estimate deductions, taxable income, income tax, other taxes, and refundable credits. This produces your estimated total tax for the year. You then calculate the amount that generally must be paid during the year to avoid an underpayment penalty. Nonresident aliens use Form 1040-ES(NR) to figure estimated tax.

To figure your estimated tax, you must figure your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year. It may be helpful to use your income, deductions, and credits for the prior year as a starting point. Use your prior year's federal tax return as a guide. Remember, You can use the worksheet in Form 1040-ES to figure your estimated tax.     

Include expected adjustments to income and either the standard deduction or estimated itemized deductions. Consider business deductions in the business-profit calculation, but of course do not count the same deduction twice.

Apply the expected tax rules to taxable income, then add self-employment tax and any other applicable taxes. For a rough self-employment-tax estimate, net earnings from self-employment are generally figured using 92.35% of net profit before applying the 15.3% combined Social Security and Medicare rate, subject to the Social Security wage limit and other adjustments. You calculate self-employment tax (SE tax) using Schedule SE, Self-Employment Tax, (Form 1040).  

How the Calculation Works:

Find Net Profit: Subtract your regular business expenses from your total business income.

Apply the 92.35% Factor: Multiply your net profit by 0.9235 to get your taxable net earnings.

Apply the 15.3% Tax Rate: Multiply that new subtotal by 15.3% (split into 12.4% for Social Security and 2.9% for Medicare).

Subtract applicable credits, including refundable credits used by the Form 1040-ES worksheet. The result is the estimated 2026 tax.

Compare 90% of estimated 2026 tax with 100% of the tax shown on the full-year 2025 return. Use 110% of prior-year tax when 2025 adjusted gross income exceeded $150,000, or $75,000 if married filing separately. The smaller applicable amount is generally the annual safe-harbor target. Subtract expected withholding, then schedule the remaining required amount.

Suppose a consultant projects $16,000 of total 2026 federal tax. The 90% current-year target is $14,400. The consultant’s 2025 total tax was $12,000, the return covered 12 months, and the higher-income rule does not apply. Because $12,000 is smaller than $14,400, the prior-year safe harbor is the required annual payment for this example.

If $4,000 will be paid through wage withholding, the remaining safe-harbor amount is $8,000. With steady income and payments beginning on time, that would generally mean four $2,000 estimated payments. However, the consultant may still owe another $4,000 when filing because the projected tax is $16,000. The safe harbor can prevent a penalty. It doesn’t reduce the actual tax.

The IRS divides the year into four payment periods. If a due date falls on a weekend or legal holiday, the deadline generally moves to the next business day. The dates for paying payroll and other amounts can be found by using the links under the Payment number column.

You may pay the entire estimated amount by the first due date, but most taxpayers use installments. If you file the 2026 return by January 31, 2027, and pay the full balance with the return, you may skip the January 15 payment. That does not erase a penalty caused by an underpayment in one of the first three periods.

You don’t have to make an estimated payment before you receive income that creates the obligation. If the income begins later in the year, the first payment can generally begin with the deadline for that later period. Publication 505 provides a schedule for the remaining installments.

If income, deductions, credits, or withholding change, then you have to recalculate. A strong summer, an unexpected capital gain, a new spouse’s job, or a business slowdown can all change the answer. The IRS worksheets include an amended estimated-tax calculation so the unpaid amount can be allocated over the remaining deadlines.

Seasonal or uneven income deserves special attention. Dividing the annual estimate into four equal payments can overstate what was due early in the year or understate it later. The annualized income installment method matches the required payment more closely to when income was earned. Taxpayers using this method generally attach Form 2210 and Schedule AI to the return.

The IRS allows several payment methods. You can apply a prior-year overpayment to the next year, transfer money from a bank account through IRS Direct Pay or an IRS Online Account, use the Electronic Federal Tax Payment System, pay by card through an authorized processor, or mail a check or money order with a Form 1040-ES voucher. Confirm that the payment is designated for the correct tax year and as an estimated-tax payment, then keep the confirmation with your tax records.

Move a chosen percentage of business receipts into a separate savings account as money arrives. The percentage is not the tax calculation, but it creates the cash reserve needed when the calculation produces a payment. Review the reserve percentage after each tax estimation.

Create reminders at least two weeks before each deadline. Use that time to update your bookkeeping, review year-to-date profit, verify withholding, and schedule the payment. If you only put a reminder on the due date it leaves little room to correct missing records or transfer funds.

A useful estimated-tax calculation begins with a realistic full-year estimation, not a guess based on one profitable month. Estimate income, deductions, credits, withholding, and all applicable taxes; compare the result with the safe-harbor target, and pay the required amount by each quarter’s deadline. Then revisit the calculation when the business or household income changes.

You don’t have to predict the yearly income perfectly. You do need a reasonable process and the discipline to update it if needed. When the bookkeeping is current and the dates are planned in advance, estimated taxes become a manageable part of running the business instead of a surprise that arrives with the annual tax return.

If you want help turning your year-to-date numbers into a practical estimated-tax plan, The Smith Advisory can help you review the calculation and upcoming deadlines. Feel free to contact us at [email protected] so you can protect your cash flow, make informed payments, and reduce the risk of avoidable penalties.

This article is for general educational and informational purposes only and is not tax, legal, accounting, or financial advice. Tax calculations depend on individual facts, and federal and state requirements may change or differ. Consult a qualified tax professional about your circumstances before making or changing estimated-tax payments.