I missed my quarterly estimated tax payments. How do I avoid the penalty?

Withholding fixes missed estimated payments. A late estimated payment doesn't.

The reason is one sentence in the Internal Revenue Code. Section 6654(g) treats income tax withheld from wages as paid in equal parts on each of the four estimated tax due dates, no matter when it actually came out of your paycheck. A dollar withheld in December counts as a quarter paid in April, a quarter in June, a quarter in September and a quarter in January.

Who this applies to

• Self-employed people, 1099 contractors and business owners who were supposed to pay 2026 estimated tax on April 15, June 15 and September 15, 2026, and didn't pay enough.
• S-Corp owners who take a W-2 salary from their own company and control its payroll.
• Anyone with a W-2 job, or a spouse with one on a joint return, who can still change withholding before year end.

Who it doesn't

• People whose 2026 tax after withholding and credits will be under $1,000. Section 6654(e)(1) says there is no penalty.
• People who had no tax liability at all for 2025, were U.S. citizens or residents all year, and had a full 12-month 2025 tax year. Section 6654(e)(2) exempts them for 2026.
• Farmers and fishermen who get at least two-thirds of their gross income from farming or fishing. They follow a different schedule with one January 15 due date.

How the penalty actually works

The underpayment penalty is interest by another name. For each of the four installments, the IRS measures how much you were short on the due date and charges the federal underpayment rate for every day the shortfall stays unpaid.

The clock on each installment stops at the earlier of two dates: the day you pay it, or April 15 of the following year. For 2026, the rate was 7% a year for January through March, 6% for April through June, and 7% for July through December, per the IRS quarterly rate tables.

Each installment is tested on its own. A big payment in December doesn't reach back and fix April.

Why a late estimated payment only stops the bleeding

An estimated payment counts on the date you make it. If you skipped April, June and September and send everything on December 15, the April money was still short for eight months, June for six and September for three.

Paying now still matters. It stops the daily charge on whatever you were short.

It just can't make the earlier quarters whole.

Why withholding can cover the quarters you missed

Withholding gets different treatment. Section 6654(g)(1) deems the year's total withholding paid in equal parts on each due date, and IRS Publication 505 says the same thing: one-fourth is considered withheld on each payment due date.

So extra withholding in October, November or December is spread back across all four installments, including the ones that are already past. That is the whole fix.

There is an opt-out. If you withheld heavily early in the year, you can elect to treat withholding as paid on the actual dates by checking box D on Form 2210. Most people catching up late in the year want the default.

Ways to add withholding before December 31

• A W-2 job. File a new Form W-4 with your employer and enter an additional amount to withhold from each paycheck. On a joint return, your spouse's withholding counts toward the household total.
• Your own S-Corp payroll. Run salary through payroll and have most of it withheld as federal and state income tax. More on the cost below.
• Withholding from other payments. The Form 2210 rules apply the equal-parts treatment to wage withholding and other withholding, such as tax withheld from a pension or IRA distribution. You can elect actual dates separately for each.

The other ways to reduce or remove the penalty

The annualized income method. If most of your income came late in the year, Schedule AI on Form 2210 lets each installment be based on what you had actually earned by that point. A consultant with a big fourth-quarter contract may owe little or nothing for the early quarters. If you use it for one due date, you have to use it for all of them.

A waiver. The IRS can waive the penalty when the underpayment came from a casualty, a disaster or another unusual circumstance and charging it would be unfair. It can also reduce it if you (or your spouse on a joint return) retired after reaching age 62, or became disabled, within the past two years and the underpayment had reasonable cause. Outside those cases, the IRS says the penalty generally can't be waived for reasonable cause.

Check the safe harbor before you panic. If your withholding and timely payments already cover 100% (or 110%) of your 2025 tax in equal quarterly pieces, there is no federal penalty even if you owe a large balance in April.

A worked example

How it changes for an S-Corp owner

An S-Corp owner can create withholding on demand, because they run the payroll. That makes Option 2 available even with no outside job.

Three conditions make it real:

1. The wages have to be paid in 2026. Section 31 credits withholding to the tax year that begins in the calendar year it was withheld, so the payroll date has to fall on or before December 31.
2. The payroll has to be real. The company reports the withholding on the owner's W-2 and deposits it with the IRS and Georgia on its normal deposit schedule. A journal entry isn't withholding.
3. The wage cost has to be worth it. A bonus is wages. For 2026, Social Security tax is 6.2% each for employee and employer on wages up to $184,500, and Medicare tax is 1.45% each with no cap.

That third point decides most cases. On a hypothetical $43,000 bonus that would otherwise have been a distribution, with total salary still under the wage base, the combined 15.3% is about $6,580 of payroll tax to avoid a penalty of about $970. That is a bad trade.

The move pays when the wages were going to be paid anyway. If a December salary payment is already part of a reasonable salary, withholding heavily from it costs nothing extra. It can also line up with a planned salary increase for the QBI deduction.

Georgia works the same way. Its statute treats withholding as paid in equal parts on each installment date, and Georgia's underpayment penalty is 9% a year, computed on Form 500 UET. Georgia's test uses 70% of current-year tax or 100% of prior-year tax, so the company should withhold state tax on the same paycheck.

This is one of several year-end moves for S-Corp owners. If you are still deciding whether the election fits, start with when an LLC should elect S-Corp status.

The bottom line

If you missed 2026 estimated payments, more withholding before December 31 is the only fix that reaches back to April. It works through a W-2 job, a spouse's job, or your own S-Corp payroll.

A late estimated payment still helps by stopping the daily charge, and the annualized income method can shrink the penalty if your income was back-loaded. For S-Corp owners, withhold from wages you were already paying, not from a bonus created only to dodge the penalty.

If you want the withholding, salary and estimates for next year set before the first deadline, the 20-minute intro call is the place to start.