Taxpayers who paid at least 100% of last year’s tax through withholding and estimated payments generally avoid an underpayment penalty, the IRS says on its estimated taxes page. The page also offers a second route, paying at least 90% of the current year’s tax, and the amount that has to be covered is the smaller of the two. For higher earners the prior-year figure rises to 110%.
For anyone who owes tax on income that has no employer withholding, such as a pension, IRA withdrawals, interest or a side business, the question comes down to arithmetic with two numbers: the tax shown on last year’s return and what has been paid in so far this year. With about eight weeks left in 2026, that comparison can still change the outcome.
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What counts as paying enough?
The IRS lays out the test in plain terms. A taxpayer avoids the penalty by paying at least 90% of the tax shown on the return for the year, or at least 100% of the tax shown on the prior year’s return. The agency says the required amount is whichever of those two is smaller.
Both totals count money from two places. Tax withheld from paychecks or other income counts, and so do estimated tax payments sent in during the year. A taxpayer does not have to use one source or the other, since the IRS looks at the combined amount.
The two tests work independently. A taxpayer whose income jumped this year can still aim at last year’s tax, because the prior-year test does not depend on how large this year’s bill turns out to be. The IRS explains withholding and estimated tax in more detail in Publication 505, which is issued for 2026.
There is also a floor. The IRS says most taxpayers avoid the penalty if they owe less than $1,000 after subtracting withholding and credits, so a small balance due at filing time does not trigger it.
When does the 110% figure apply?
The 100% rule changes for people with higher incomes. According to the IRS penalty page, a taxpayer whose adjusted gross income on the prior-year return was over $150,000 uses 110% instead of 100% in the prior-year test. For a married person filing separately, the line is $75,000.
That is why the 100% rule comes with the word generally. As an illustration of the arithmetic, a taxpayer whose adjusted gross income last year was $120,000 and whose tax was $20,000 would be safe by paying $20,000 through withholding and estimates this year. one whose adjusted gross income was $200,000 and whose tax was $50,000 would need $55,000 to use the same shortcut. Both could still fall back on the 90% test.
The IRS says certain higher-income taxpayers have separate rules described in Form 1040-ES, the form that carries the estimated tax worksheet and payment vouchers.
Does the timing of payments matter?
Yes. IRS Topic No. 306 says estimated payments are generally made in four equal amounts, one for each payment period. The estimated taxes page says the year has four payment periods with set due dates, and that a due date falling on a weekend or legal holiday moves to the next business day. A mailed payment counts on its U.S. postmark date.
Income that arrives unevenly gets different treatment. The IRS says a taxpayer whose income varied during the year, such as someone who sold an investment late in the year, may avoid or reduce the penalty by using the annualized income method, which allows unequal payments. That method is reported on Schedule AI with Form 2210.
What happens if the total still falls short?
The penalty is worked out on Form 2210, the IRS form that figures whether a taxpayer owes it and also serves to ask for a reduction or waiver. The IRS also lists two situations that can bring a waiver. One is a casualty, a disaster or another unusual circumstance in which charging the penalty would be inequitable.
The other applies to people who retired after turning 62 or became disabled. For that group, the IRS says the penalty may be waived if the shortfall was due to reasonable cause and not willful neglect. A retiree who stopped getting a paycheck partway through the year and did not adjust withholding is the kind of case the second waiver is aimed at.
How can a taxpayer check the total before the year ends?
The first number comes off last year’s return: the total tax the return shows. The second is the running total of everything paid in this year, which includes the tax withheld on pay stubs, pension statements and benefit payments, plus any estimated payments already sent.
If the second number is already at or above 100% of the first, or 110% for those over the $150,000 line, the safe harbor is met. If it falls short, the taxpayer can send an extra payment or raise withholding before the year ends. The check takes only a few minutes with last year’s return and a year-to-date pay or pension statement in hand. Either way, Form 2210 is where the final answer is figured when the return is filed.
Is your 2026 tax paid in at the right level before December ends?
A retiree who comes up short pays a penalty on top of the tax owed, and the amount that has to be covered turns on income lines such as the $150,000 mark. The comparison is easy to get wrong when pension, IRA and Social Security income arrive in different forms.
Cut Your Retirement Tax Bill: 12 Moves puts the 2026 numbers on one page and works out how much of a Social Security benefit is taxed on a single worksheet, which feeds the total a retiree needs to cover. Its 12 moves each come with the form to use.
Get the Cut Your Retirement Tax Bill guide with the 2026 numbers on one page →
This article was produced with AI assistance and edited for accuracy against the sources linked above.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
