The September 15 Estimated Tax Payment: How Much You Really Owe, and How to Fix a Missed Year

Tax Planning
Written By Larry Hall

Written by Larry Hall
August 31, 2026

The third estimated tax payment for 2026 is due Tuesday, September 15. If you are retired, self-employed, or living largely on investment income, your quarterly, estimated payments may determine whether you owe the IRS a penalty for underpayment next spring.

Many people do not know that the amount of withholding required to avoid penalty is often less than the amount you owe. The following example illustrates this point.

🧾 How understanding the rules can help.

Take a hypothetical couple, Dave and Ellen, both 74, retired, and living in New Hampshire. Their 2026 income consists of $54,000 in Social Security benefits, $16,800 from Ellen's pension, $34,000 in Required Minimum Distributions (RMDs) from Dave's IRA, and about $7,000 of interest, dividends, and capital gain distributions from a brokerage account. In March, Dave watched a YouTube video and decided he needed to convert $46,000 of his IRA to a Roth.

Run that through a 2026 Form 1040, and their federal tax bill comes to $11,567.

For this example, let’s say they have no withholding. Ellen never elected any on her pension, and Dave doesn’t withhold from his IRA distribution. Nor have they instructed Social Security to withhold tax. So how much do they need to send the IRS in 2026 to stay out of trouble?

$4,700.

That is the total tax from their 2025 return. Their 2025 Adjusted Gross Income (AGI) was under $150,000, so paying 100% of last year's tax precludes them from having to pay an underpayment penalty, no matter how large this year's tax turns out to be. The remaining $6,867 is not due until April 15, 2027, and the IRS charges nothing for the wait. It’s like an interest-free loan.

That is not a loophole. It is a safe harbor rule, written into the law.

📅 Who actually has to make estimated payments?

You generally owe estimated tax if both of the following are true:

  • You expect to owe at least $1,000 after subtracting withholding and refundable credits, and

  • Your withholding and refundable credits will come to less than the smaller of 90% of your 2026 tax or 100% of your 2025 tax.

This is generally not an issue for employees, because they normally have enough tax withheld from their paychecks to cover the tax due.

Retirees, self-employed people, landlords, anyone who sold land or a camp, or anyone doing a Roth conversion need to think about this.

An important nuance is that the payment periods for estimated payments do not line up with calendar quarters. This trips people up every year. The September 15 payment covers June 1 through August 31.

🛡️ The safe harbor is the number that matters.

Your required annual payment is the smaller of two figures: 90% of this year's tax, or 100% of last year's tax. If your prior-year AGI was more than $150,000 ($75,000 if married filing separately), that second figure is 110%.

For Dave and Ellen, 90% of their 2026 tax would be $10,410. Last year's tax was $4,700. The smaller number matters, so $4,700 is all they owe during calendar year 2026. This isn’t what most people expect. Most people would expect to pay the higher of the two numbers. That is not the case.

Once you have covered the safe harbor, there is no penalty to worry about. One caution. The safe harbor protects you from the penalty, not from the bill. Dave and Ellen still owe $6,867 next April, and it needs to be available when the time comes.

💣 What the penalty actually costs.

The underpayment penalty is not a fine. It is interest, charged on each installment you were short, for the days you were short, at the rate the IRS publishes each quarter. That rate is currently 7% a year for individuals.

Suppose Dave and Ellen do nothing at all in 2026 and pay the whole $11,567 with their return on April 15, 2027. Their required quarterly installments were $1,175 each (Remember we assumed they had no tax withheld, so they would need to pay $1,175 × 4 = $4,700). The first amount due sat unpaid 365 days, the second 304 days, the third 212 days, the fourth 90 days. The penalty comes to about $219, assuming the rate holds at 7%.

Not ruinous. But why pay $219 for a problem with a free fix, and the fix is available right up to the end of the tax-year.

🧰 The December move that rescues a missed year.

If you missed paying your estimated payments, you may still have an option to avoid penalty.

Estimated payments are credited based on the day you make them as illustrated above. However, the IRS treats federal income tax withheld at any point during the year as though one fourth of it were paid on each of the four due dates. Withhold $4,000 from a distribution on December 20, and the IRS treats $1,000 of it as having arrived back on April 15. This is true of any withholding whether it is paid as part of an IRA or pension distribution, taken from your Social Security check, or even a part-time job.

Some well planned withholding can save you from the underpayment penalty.

So if it is September and you have already missed April and June, you have two paths:

  • Send $4,700 by September 15. That covers the third and fourth installments and catches up the first two, but the first two were late. The penalty is roughly $55.

  • Withhold $4,700 from a December IRA distribution instead. All four installments are treated as paid on time. The penalty is zero.

Dave and Ellen are taking their RMD in December anyway. Instead of taking the full amount and writing a check in April, they file Form W-4R with the custodian and elect a withholding rate high enough to cover the $4,700. Same income, same total tax, no penalty, nothing else to remember. For pension income, Form W-4P does the same job.

The default rate on an IRA distribution is 10%, but you can elect anything from 0% to 100%. Some custodians need a couple of weeks to process the change, so December 30 is cutting it close. Ask for it in November to be safe.

🧭 What to do about it

  1. Find last year's total tax. It is line 24 of your 2025 Form 1040. That number, or 110% of it if your 2025 AGI exceeds $150,000, is your target for the year.

  2. Add up what you have already paid in. Include withholding from any source, plus any estimated payments you have made, plus any 2025 refund you applied forward.

  3. Subtract. If you are short, decide between an estimated payment now and withholding later. If you have an RMD or a pension coming, withholding is almost always the better tool.

  4. Set aside the difference. The safe harbor delays the bill. It does not cancel it.

  5. If you don’t live in New Hampshire or one of the other states with no income tax, consider the withholding requirement for your state as well.

A note for those of you who did a Roth conversion this year: if you take the tax out of the converted amount, you shrink the conversion and, if you are under 59½, you create a taxable distribution on the withheld portion. Pay conversion tax from outside the IRA when you can.

Not sure whether you owe one of these?

I am happy to help. Schedule a free consultation to discuss your situation.

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This article is for informational purposes only and does not constitute professional tax advice. For guidance on your specific situation, consult a qualified tax professional.

📚 Sources & Further Reading

Larry Hall

Lawrence (Larry) Hall, CPA, EA is a Grantham, New Hampshire based tax professional. He holds MS in Accounting and MBA degrees from Plymouth State University, where he taught accounting for several years. He thinks a lot about tax matters so you don’t have to.

https://HallTaxPro.com
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