US Estimated Tax Penalty Calculator

Understanding the Estimated Tax Underpayment Penalty

If you don't pay enough tax throughout the year through withholding or estimated tax payments, the IRS may charge you an underpayment penalty. This penalty is essentially interest on the amount you should have paid but didn't, calculated for the period between when the payment was due and when you actually pay (or April 15 of the following year).

Who Is Subject to the Penalty?

You may owe a penalty if your total tax payments (withholding plus estimated payments) are less than the smaller of 90% of your current year tax liability or 100% of your prior year tax liability (110% if your prior year AGI exceeded $150,000, or $75,000 if married filing separately). If you meet either of these "safe harbor" thresholds, you will not owe a penalty regardless of how much additional tax is due when you file.

How the Penalty Is Computed

The penalty is calculated separately for each quarter. The IRS determines the required installment for each period, compares it to what you actually paid, and charges interest on any shortfall from the due date of that quarter's payment until the earlier of the date you pay the tax or April 15 of the following year. The annual interest rate is set quarterly by the IRS (federal short-term rate plus 3 percentage points).

Quarterly Due Dates and Penalty Periods

• Q1: Due April 15 — penalty runs through June 15 (61 days)
• Q2: Due June 15 — penalty runs through September 15 (92 days)
• Q3: Due September 15 — penalty runs through January 15 (122 days)
• Q4: Due January 15 — penalty runs through April 15 (90 days)

Exceptions and Waivers

The IRS may waive the penalty if you underpaid due to a casualty, disaster, or other unusual circumstance, or if you retired (after reaching age 62) or became disabled during the tax year. The penalty also does not apply if your total tax owed after withholding is less than $1,000. Additionally, taxpayers with uneven income throughout the year (such as seasonal businesses) may be able to reduce or eliminate the penalty using the annualized income installment method on Schedule AI of Form 2210.

Tips to Avoid the Penalty

The simplest way to avoid the underpayment penalty is to ensure your withholding and estimated payments meet the safe harbor thresholds. If you receive income that isn't subject to withholding (self-employment, investments, rental income), make quarterly estimated payments using IRS Form 1040-ES. You can also request additional withholding from your employer by adjusting your W-4. Setting aside 25–30% of non-withheld income in a dedicated savings account makes it easier to cover quarterly payments when they come due.