Skip the Underpayment Penalty: What Your Q4 Estimated Payment Needs to Be by January 15, and a Calculator That Tells You

The fourth-quarter estimated payment is the one most owners get wrong, and not because the math is hard. It is because the target moves. By January 15 you know most of what 2026 earned you, you have three payments already in, and the question is no longer “what do I owe?” but “what is the smallest check that keeps the IRS from charging me interest for the next three months?” Those are different numbers, and the second one is usually lower.

This post walks through the rule, the four questions that decide your payment, and what to do with a late-year income spike. The Q4 Estimated Tax Calculator at the bottom takes your 2025 return, your 2026 projections and what you have paid so far, and returns the payment that lands you inside a safe harbor plus the balance you will still owe in April.

The rule, in one paragraph

Federal income tax is pay-as-you-go. Under IRC §6654 you owe an underpayment penalty, which is really interest at the federal short-term rate plus three points, if you end the year owing $1,000 or more after withholding and refundable credits, and your payments through the year fall short of the smaller of two safe harbors: 90% of your 2026 tax, or 100% of your 2025 tax. If your 2025 adjusted gross income was more than $150,000 ($75,000 if married filing separately), the prior-year harbor rises to 110%. The 2026 Form 1040-ES spells out the same tests. The current rate on underpayments is 7%, set by IR-2026-98 for the quarter ending December 31; the IRS announces the Q1 2027 rate in December.

Two things that surprise people: “tax” means total tax on the return, so self-employment tax counts, and withholding is treated as paid evenly across the year no matter when it came out of a paycheck. Estimated payments are credited on the day they arrive.

The four questions that decide your payment

1. Was your 2025 AGI more than $150,000?

This is the mistake I see most. An owner who paid $21,500 of tax in 2025 pays four quarters of $5,375 in 2026, feels safe, and gets a penalty notice because their 2025 AGI was $150,001 and the harbor was 110%, or $23,650. Exactly $150,000 stays at 100%; one dollar over moves it. Check line 11 of the 2025 return, not your 2026 income.

2. Which harbor is lower, 90% of this year or 100%/110% of last year?

You only have to hit the lower one. If 2026 is a better year than 2025, the prior-year harbor is almost always the cheaper way to avoid the penalty, even though you will owe the difference in April. If 2026 is a worse year, 90% of the current year wins and you should not be sending last year’s number. The prior-year harbor is only available if you filed a full 12-month 2025 return; a first-year business or a short-year return has to use 90% of 2026. And if your 2025 tax was zero on a full-year return, your required payment is zero and there is no penalty at all, though the cash is still due April 15.

3. Will you owe less than $1,000 after withholding?

Then no estimated payment is required under §6654(e)(1). This is the S-corp owner’s exit: if payroll withholding on your salary already covers the bill, Q4 is nothing. It is also the reason a W-4 change in November beats an estimated payment in January. Extra withholding from a December paycheck is treated as if it had been paid evenly since January, which can cure an underpayment from an earlier quarter. A January 15 estimated payment cannot.

4. Did your income spike after August 31?

A property sale, a big fourth-quarter contract, a crypto or stock gain. The default penalty calculation assumes you earned evenly through the year, so it would charge you for not paying tax in April on income you did not have until November. The annualized income installment method on Form 2210, Schedule AI, recomputes each quarter on what you had actually earned by then. It is extra work and you have to attach the schedule even if no penalty results, but when the income arrived late it is often the difference between a penalty and none.

The mechanics

Pay online at IRS Direct Pay or through your IRS online account, choose “Estimated tax” and tax year 2026, and keep the confirmation number. Pub. 505 chapter 2 has the full worksheet. If you file your 2026 return and pay the entire balance by February 1, 2027, you can skip the January 15 payment altogether, which is rarely practical but worth knowing if your books are already closed.

Texas has no personal income tax, so there is no state estimate to make. The Texas franchise tax is an entity-level filing due May 17, 2027, and does not run through this calculation.

Deadlines and penalties

The penalty is computed on Form 2210 quarter by quarter, from each due date until the shortfall is paid or April 15, whichever is first. Skipping a $5,200 Q4 payment entirely costs roughly $90 at 7%; the real cost is that the IRS also catches the earlier quarters when it runs the form.

The calculator

The Q4 Estimated Tax Calculator is a Google Sheet built for one taxpayer at a time. Settings holds every number that can change: the $1,000 floor, the 90%/100%/110% tests, the $150,000 and $75,000 AGI lines, the 2026 brackets and standard deductions from Rev. Proc. 2025-32, the $184,500 Social Security wage base, and the 7% rate. Inputs is a single form for one taxpayer, fourteen yellow cells: filing status, 2025 total tax and AGI from lines 24 and 11, whether you filed a full-year 2025 return, projected 2026 wages, withholding, self-employment profit, other income, itemized deductions, QBI-eligible income, credits, and what you have already paid. Calc builds the 2026 tax (income tax, SE tax, the 0.9% Additional Medicare tax, a simplified 20% QBI deduction), applies the §6654 tests, and Output gives you the required annual payment, which harbor it rests on, the Q4 payment that gets you there, the balance left for April, a rough penalty figure if you skip it, and flags for the 110% rule, the Feb 1 alternative, W-4 withholding and the annualized method.

The form opens pre-filled with the sole proprietor from this post ($95,000 net profit, $14,200 of 2025 tax, $9,000 paid so far; Q4 payment $5,200, April balance $6,851). An Examples tab holds ten more worked cases, including the $150,000 vs $150,001 pair, an MFS taxpayer at $75,001, an owner under the $1,000 floor, one with zero 2025 tax, a first-year business, an S-corp owner whose withholding covers everything, an overpaid Q1–Q3, and a late-year capital gain. Copy any of them into Inputs to see how the rule behaves, then overwrite with your own numbers.

What to do this week

Open your 2025 return, write down line 11 and line 24, and run the sheet with your year-to-date numbers from QuickBooks extended to December 31. If the Q4 figure surprises you, there are still ten weeks to change the answer with a W-4 adjustment, a retirement contribution or an equipment purchase. That projection is the core of the tax advisory work we do at Crossroads Growth: a year-end number you have seen before April.

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