The Annualized Income Installment Method

Each installment is the cumulative requirement minus what earlier periods already required. "Tax on annualized income" applies the 2026 single brackets after the full $16,100 standard deduction, which Schedule AI subtracts in every column without annualizing it.

The 110% route is safe but ties up cash: $121,000 paid in for a year that only requires $80,221, with the excess coming back only at filing. The last two rows both total $80,221, but under the annualized method Dana keeps about $50,500 more in her own account through September than the even-installment schedule, and she does not need to forecast the fall deal in April.

1. Income to date (line 1). AGI earned from January 1 through the end of the period. The periods build: each one includes everything before it.
2. Annualize (lines 2 and 3). Multiply by the annualization amount to project a full year at that pace.
3. Deductions (lines 4 to 10). Itemized deductions are annualized too; the standard deduction is entered in full. The QBI deduction is figured on the annualized amounts.
4. Tax (lines 14 to 19). Income tax on the annualized taxable income, plus annualized self-employment tax from Part II and other taxes such as Additional Medicare Tax and net investment income tax, minus credits.
5. Applicable percentage (lines 20 and 21). 22.5%, 45%, 67.5% or 90% of that annualized tax.
6. Compare and carry (lines 22 to 27). Subtract earlier installments, compare the result with the regular installment plus any amount deferred from earlier columns, and use the smaller number.

If you are self-employed, Part II annualizes self-employment tax separately. It applies the 92.35% net earnings factor, then caps the Social Security portion with a prorated wage base for each period. For 2026, with a $184,500 wage base, those caps work out to $46,125, $76,875, $123,000 and $184,500.

If you also have W-2 wages, those wages use up part of each period's cap. Most tax software handles Part II automatically once you supply period-by-period income. For how much to reserve from each self-employed deposit in the first place, see how much to set aside for 1099 taxes.

A practical rule: if your income is merely variable, use the prior-year safe harbor from the estimated tax payments guide and skip Schedule AI. If it is truly backloaded, with most of the year's income arriving after August, the annualized method is worth the paperwork. For gains specifically, see estimated tax on capital gains.

1. Track income at each cutoff. Keep year-to-date figures as of March 31, May 31, August 31 and December 31. Monthly books make this easy; a shoebox makes it nearly impossible.
2. Pay the annualized amounts on time for each installment as you go.
3. File Form 2210 with your return, check box C in Part II, and attach Schedule AI.
4. Consider box D as well if most of your withholding happened early in the year and you want it counted on the actual dates.

Already filed and received a penalty notice? The Form 2210 penalty guide covers how the penalty is figured and when a waiver applies, and the estimated tax penalty calculator shows the regular-installment view the IRS starts from.

The annualized method does not replace the safe harbor rules; it sits on top of them. Your required annual payment is still the smaller of 90% of current-year tax or 100% (110% for prior-year AGI above $150,000) of last year's tax. Schedule AI only changes how that requirement is spread across the four due dates.

That is why the annualized method matters most when 90% of the current year is your controlling number. If the prior-year number is lower, the even installments are already small and fixed, and there is little to gain.

Many states that tax income let you annualize on their own underpayment form, for example California Form 5805 and New York Form IT-2105.9. The periods and percentages can differ from the federal schedule, and California's uneven 30/40/0/30 installment pattern changes the math. If you work or invest across state lines, each state needs its own calculation. See the California estimated tax guide for one example.