A freelancer who earns almost nothing from January to April and then bills most of her year between May and August runs into a problem that most quarterly-tax advice skips. The IRS checks estimated tax installment by installment, not just for the year as a whole, so four equal payments can be too much in April and still look right on paper. There are three ways to size those payments, and they can differ by thousands of dollars in the first two quarters. Below I work one hypothetical through all three: 90% of this year’s tax, the prior-year safe harbor, and the annualized income installment method on Form 2210, Schedule AI.
I’m a finance writer, not your tax preparer, and this is general information from IRS documents, not personalized tax advice. KnowWiser doesn’t earn a commission on anything in this piece. Every dollar figure below is either attributed to an IRS source or labeled as part of the hypothetical.
Which method should you use for uneven income?
Short answer: pick the method that gives you a payment you can defend under the rules. The annualized method mainly changes when you pay, not whether the year’s total is enough. The IRS’s own estimated tax page says that if your income is received unevenly, you may be able to avoid or lower the penalty by annualizing your income and making unequal payments.
The three candidates:
- Equal quarterly payments sized to the current-year test: at least 90% of this year’s tax, paid in four equal parts.
- The prior-year safe harbor: at least 100% of last year’s tax (110% if last year’s AGI was over $150,000, or $75,000 if married filing separately), paid in four equal parts.
- The annualized income installment method: unequal payments matched to when you actually earned the money, calculated on Schedule AI and filed with Form 2210.
The IRS rule underneath all three, as its Topic 306 page states it: you avoid the penalty if you owe less than $1,000 after withholding and refundable credits, or you paid at least 90% of the current year’s tax or 100% of the prior year’s tax, whichever is smaller.
How does one lumpy year look under all three methods?
In this hypothetical, the annualized method asks for $178 by April 15, while the prior-year safe harbor asks for $3,500, and by September 15 the annualized method has caught up with equal payments at 90% of this year’s tax. Here is the setup. It is a made-up freelancer, not a real person, and your numbers will differ.
The hypothetical freelancer (single filer, 2026):
- Net freelance profit, cumulative: $6,000 through March 31, $14,000 through May 31, $70,000 through August 31, $90,000 for the full year.
- No other income, no withholding, standard deduction only, no other credits or deductions.
- 2025 tax (the prior year) was $14,000 on AGI under $150,000, so the 100% test applies.
- To keep the arithmetic easy to follow, I use federal income tax only. A real freelancer also owes self-employment tax, which Schedule AI annualizes too (Part II), and may have deductions I leave out (such as the deduction for half of self-employment tax or the qualified business income deduction). See the note on that below.
Full-year 2026 tax in the hypothetical. The 2026 single-filer standard deduction is $16,100 and the brackets are the ones in the IRS’s tax year 2026 inflation adjustments (I walk through them in the 2026 brackets and standard deduction post). Taxable income is $90,000 minus $16,100, or $73,900:
- 10% on the first $12,400 = $1,240
- 12% on the next $38,000 (to $50,400) = $4,560
- 22% on the remaining $23,500 = $5,170
Total: $10,970.
Method 1: equal payments at 90% of this year’s tax
90% of $10,970 is $9,873, or about $2,468 per installment. The catch is that you only know $10,970 in hindsight. In April you are estimating it.
Method 2: the prior-year safe harbor
100% of last year’s $14,000 is $14,000, or $3,500 per installment. The number is known on day one, which is its appeal. In this hypothetical it is also $3,030 more than the year’s actual tax. That overpayment comes back as a refund, but until then it is your cash sitting with the IRS while you may be short in April. (If 2025 AGI had been over $150,000, the 110% rule would make it $15,400.) Strictly, the IRS test is the smaller of the current-year and prior-year amounts, so in hindsight the amount needed here to avoid the penalty is $9,873. The $14,000 is what you would pay if you wanted a number that is certain in April, before you know the year’s tax.
Method 3: the annualized income installment method (Schedule AI)
Form 2210’s instructions describe four cumulative periods: January 1 to March 31, January 1 to May 31, January 1 to August 31, and the whole year. Each period’s income is multiplied by an annualization factor: 4, 2.4, 1.5 and 1 for an individual. The annualized tax for each period is then multiplied by a cumulative percentage: 22.5%, 45%, 67.5% and 90%. Those factors and percentages are printed on Schedule AI (lines 2 and 20) of the 2025 Form 2210, the latest published version. The 2026 form is not out yet, so treat them as subject to change and recheck them when it appears.
Here are the calculations for the hypothetical, using the same brackets and standard deduction:
| Period ends | Cumulative profit | x factor | Annualized income | Annualized tax | x cumulative % | Cumulative required |
|---|---|---|---|---|---|---|
| Mar 31 | $6,000 | 4 | $24,000 | $790 | 22.5% | $177.75 |
| May 31 | $14,000 | 2.4 | $33,600 | $1,852 | 45% | $833.40 |
| Aug 31 | $70,000 | 1.5 | $105,000 | $14,270 | 67.5% | $9,632.25 |
| Dec 31 | $90,000 | 1 | $90,000 | $10,970 | 90% | $9,873.00 |
(For the Mar 31 row: $24,000 minus $16,100 is $7,900 taxable, and 10% of that is $790. For the Aug 31 row: $105,000 minus $16,100 is $88,900 taxable, which gives $1,240 + $4,560 + 22% of $38,500, or $14,270.)
Subtract what was already required in earlier periods and you get each annualized installment. One wrinkle: the IRS says Schedule AI uses the smaller of the annualized installment or the regular installment, where the regular installment is increased by the amount you saved in earlier periods. In plain terms, the annualized method can move payments later, but it cannot ask for more, by a given date, than the regular schedule would have. Here that cap bites on September 15: the annualized figure would be $8,798.85, but the regular schedule (one-fourth of the $9,873 required annual payment, $2,468.25, plus the earlier savings carried forward) caps it at $6,571.35. On Schedule AI this is lines 22 through 27.
The result:
| Installment (due date) | Method 1: 90% current year | Method 2: prior-year safe harbor | Method 3: annualized (Schedule AI) |
|---|---|---|---|
| Apr 15 | $2,468 | $3,500 | $178 |
| Jun 15 | $2,468 | $3,500 | $656 |
| Sep 15 | $2,468 | $3,500 | $6,571 |
| Jan 15, 2027 | $2,468 | $3,500 | $2,468 |
| Total | $9,873 | $14,000 | $9,873 |
Cumulative payments through September 15 are $7,405 under both Method 1 and Method 3 (each is $7,404.75 before rounding) and $10,500 under Method 2. The installments in the table are rounded to the dollar and the cumulative figures in the graphic are rounded from the unrounded amounts, so a sum can differ by $1 (for example, $178 + $656 shows as $833 cumulative through June 15). What Method 3 buys the freelancer is not a lower yearly total (it matches Method 1) but a much lighter April and June, when her profit through March was $6,000 and through May was $14,000.
What does Schedule AI cost you in effort and risk?
It costs bookkeeping and a firm commitment: you need income totals for each cutoff, and if you use Schedule AI for any due date you must use it for all four. The IRS says this in the Form 2210 instructions, and you elect the method by checking box C in Part II of Form 2210, filed with your return.
A few practical consequences:
- Cutoffs are fixed. The periods end March 31, May 31, August 31 and December 31, not on the due dates. Monthly profit records matter, and so does noting when a big invoice was actually received.
- It also annualizes self-employment tax. Part II of Schedule AI covers annualized self-employment tax. My hypothetical leaves SE tax out to keep the arithmetic simple, which means a real freelancer’s required installments would be larger than the ones above. For the current rate and how it is figured, use the IRS’s Schedule SE and Form 1040-ES instructions rather than my numbers.
- You can plan with it during the year. IRS Publication 505 (2026) includes an “Annualized Income Installment Method” section and a worksheet (Worksheet 2-9) for exactly this.
- Withholding is treated as paid evenly. The IRS says you are considered to have paid one-fourth of withheld federal income tax on each due date unless you can show otherwise. If you also have a W-2 job, that matters, because the timing rules for withholding differ from the rules for estimated payments. Electing to use actual withholding dates means checking box D in Part II and attaching Form 2210.
Which method fits which situation?
If last year was lower than this year, the prior-year safe harbor is usually the cheapest defensible number. If last year was higher, or you have no comparable prior year, annualizing is the tool that keeps early quarters small. This table shows what the rules say, not what you personally should do.
| Your situation | What the rules point to |
|---|---|
| Last year’s tax was lower than 90% of what you expect this year | Prior-year safe harbor gives the smaller required amount (“whichever is smaller”), and the number is known on day one |
| Last year’s tax was higher, and this year’s income arrives late | Annualized method can lower the early installments, as in the hypothetical |
| Last year’s AGI was over $150,000 ($75,000 if married filing separately) | Prior-year test becomes 110%, not 100% |
| Last year’s return did not cover a 12-month period (for example, a first year of business) | The IRS says the prior-year return must cover 12 months, so the prior-year test is unavailable; the 90% test and Schedule AI are still open to you |
| You owe less than $1,000 after withholding and credits | No underpayment penalty under the IRS’s Topic 306 |
| Income is steady all year | Equal installments are simple and probably enough |
What if you already missed the September 15 payment?
The penalty is figured installment by installment, so a missed September 15 installment is a shortfall that accrues interest for the days it stays unpaid, and paying sooner stops it growing. Here is what the rules give you, as options rather than instructions.
First, the size of the miss depends on the method. If you were tracking equal installments, the shortfall was one installment ($2,468 in the hypothetical). If you were tracking Schedule AI, the shortfall is whatever the annualized calculation required through August 31. Run the calculation before assuming the worst; if your income through August 31 was low, the required amount may have been small or zero.
Second, put a dollar figure on it. The penalty is figured at the IRS underpayment interest rate. For October 1 through December 31, 2026 that rate is 7% per year, compounded daily, per the IRS’s fourth quarter 2026 interest rate announcement (IR-2026-98). For July 1 through September 30, 2026 it is also 7% (Rev. Rul. 2026-10). It resets every quarter, and the rate from January 1, 2027 has not been announced, so check the current IRS rate for later periods. A rough estimate is shortfall x rate x days / 365. I am ignoring daily compounding, which is small at this size. The penalty runs from the installment due date to the date you pay or the end of the last rate period, whichever is earlier; in the 2025 Form 2210 instructions that end date is April 15 of the following year, and I assume April 15, 2027 for 2026 (the 2026 instructions are not out yet).
| Missed Sept. 15 shortfall (hypothetical) | Unpaid until April 15, 2027 (212 days; assumes 7% continues after Dec. 31, 2026) | Paid Sept. 30, 2026 (15 days, at the confirmed 7%) |
|---|---|---|
| $2,468 (equal installments) | about $100 | about $7 |
| $6,571 (annualized installment) | about $267 | about $19 |
In this hypothetical, then, being late costs tens or low hundreds of dollars, not thousands, and paying now shrinks it. That is still worth avoiding, and Form 2210 does its own arithmetic, so use the IRS’s numbers for your return, not my rough ones.
Third, the fourth installment is due January 15, 2027. Missing September 15 does not change that date. The Form 2210 instructions say a payment is applied first to any unpaid balance on an earlier installment, so a January payment first pays down September’s shortfall, which stops that shortfall accruing but does not remove the penalty already accrued. The 2026 Form 1040-ES also says you do not have to make the January 15, 2027 payment if you file your 2026 return by February 1, 2027 and pay the entire balance due with it. If you also have wage income, the IRS’s rule that withholding is treated as paid evenly means extra withholding late in the year can help; ask your payroll department or a tax professional how to set that up for your situation.
What should you do before Q4?
Work out which of the three numbers applies to you, then decide whether the bookkeeping for Schedule AI is worth it for your year. A practical order:
- Pull last year’s total tax and AGI from your 2025 return. That gives you the prior-year figure and tells you whether the $150,000 rule applies.
- Estimate this year’s total tax, including self-employment tax. The Form 1040-ES worksheet is built for this, and the 2026 brackets show where each dollar lands.
- If your income arrives in lumps and last year was higher, run the annualized numbers using Pub. 505’s worksheet.
- Write down your income totals for March 31, May 31 and August 31 now, before you forget. You will need them for Schedule AI on the return.
- Remember that state income tax exists and its rules vary. Your state’s revenue site has its own estimated-tax rules, and I have not worked them here.
If you are also weighing a Roth conversion this year, the same 2026 brackets drive the math in how much to convert to a Roth before year-end.
What can the take-home pay calculator do here?
Use it to estimate your annual income tax first, then apply the installment math above. Our take-home pay calculator uses the 2026 federal brackets and standard deduction, so you can put in your projected annual income and see the income tax that lands on it.
Know its limits before you rely on it. It models salary income, with employee-side Social Security and Medicare. It does not compute self-employment tax, and it does not produce quarterly or annualized installment amounts. For those, use the Form 1040-ES worksheet and Schedule AI linked below.
Sources
- IRS: Estimated taxes (who must pay, the 90%/100% safe harbor, and the annualized option for uneven income)
- IRS: Topic no. 306, Penalty for underpayment of estimated tax
- IRS: Instructions for Form 2210, including Schedule AI (annualization periods and factors, the 110% / $150,000 rule, the all-four-dates requirement, withholding treatment)
- IRS: Form 1040-ES (2026), Estimated Tax for Individuals (due dates April 15, June 15, Sept. 15, 2026 and Jan. 15, 2027)
- IRS: Publication 505, Tax Withholding and Estimated Tax (Annualized Income Installment Method section and worksheet)
- IRS: Form 2210 (2025), Schedule AI lines 2, 20 and 22 to 27 (annualization amounts, cumulative percentages, the smaller-of rule)
- IRS: Rev. Rul. 2026-10, Internal Revenue Bulletin 2026-22 (7% underpayment rate, July 1 to September 30, 2026)
- IRS: Interest rates remain the same for the fourth quarter of 2026 (IR-2026-98, 7% for individual underpayments, October 1 to December 31, 2026)
- IRS: Tax inflation adjustments for tax year 2026 (2026 brackets and standard deduction used in the hypothetical)
Verified as of 2026-09-30 against the IRS pages above: the $1,000, 90% and 100% tests; the 110% rule and $150,000 / $75,000 AGI threshold; the Schedule AI periods, factors (4, 2.4, 1.5, 1) and cumulative percentages (22.5%, 45%, 67.5%, 90%); the smaller-of rule and boxes C and D; the all-four-dates requirement; the withholding treatment; the 2026 brackets and $16,100 standard deduction; the 2026 Form 1040-ES due dates; and the 7% underpayment rate for July to September 2026 and October to December 2026. The 2026 Form 2210 and Schedule AI are not yet published, so the form-level details come from the tax year 2025 form and instructions and should be rechecked when the 2026 versions appear. The underpayment rate from January 1, 2027 has not been announced. Everything else in the worked example is a labeled hypothetical. Tax rules and IRS figures change; confirm your own numbers on irs.gov or with a tax professional before you act.