The due dates for quarterly estimated tax payments for your 2025 tax year are April 15, 2025; June 16, 2025; September 15, 2025; and January 15, 2026.
When you miss one of those dates, the tax code penalizes you.
The current penalty rate for underpaying the first payment on April 15, 2025, is 7 percent. You can’t deduct the cost of the penalty, so the true rate is higher. In the 37 percent tax bracket, the penalty cost is equivalent to11.11 percent—or 1.59 times higher than 7 percent.
If you incur a penalty in Q1, you can’t fix that penalty with a big payment on January 15, 2026. But you could use strategic withholding from a planned IRA rollover or from W-2 wages and bonuses to disappear the penalty, as we explain below.
But first let’s look at the estimated tax payment safe harbor rules.
Safe Harbor Rules
90 percent rule. There’s no penalty when you pay at least 90 percent of your
current year’s tax, as shown on your Form 1040, via timely estimated tax payments. Timely means that you pay your estimated tax at a rate no less than 22.5 percent of your current-year tax by each of the four estimated tax payment deadlines.
100 percent rule. If your adjusted gross income (AGI) on your prior year’s return is $150,000 or less ($75,000for taxpayers who are married, filing separately), there’s no estimated tax underpayment penalty when you payat least 100 percent of the tax shown on your Form 1040 for the prior year via timely estimated tax paymentsat a rate no less than 25 percent for each quarter.
110 percent rule. If the AGI shown on your prior-year return exceeded $150,000 ($75,000 if you use married-filing-separately status for the current year), you must pay 110 percent of the tax shown on your prior-year return at a rate no less than 27.5 percent for each quarter to avoid the penalty.
Withholding Solutions
Federal income tax withholding counts as estimated tax payments, spread equally across the four due dates—unless you can show when the withholding actually happened, in which case you can choose to treat it as paid on those specific dates.
Bonus Solution
On December 1, you realize that you shorted your estimated tax payments by $40,000. You operate your business as an S corporation and have the S corporation pay you a bonus of $47,000 and withhold federal income tax of $40,000. Presto! The tax code applies $10,000 to each of your four estimates. Problem solved.
Not so fast. Yes, the added withholding solves the underpayment of estimated tax penalty, but it costs you and your corporation 15.3 percent in additional Social Security and Medicare taxes. You need to give this equation additional thought.
The IRA rollover-and-replace solution (discussed later) may be the answer.
Overcoming the W-2 Job Solution
You had $10,000 in withholding from your W-2 job during the first three months of the year. You need to make $40,000 in estimated tax payments for the year and plan to pay $10,000 in Q2, Q3, and Q4. So, instead of letting the IRS automatically spread the $10,000 withholding evenly across all four quarters ($2,500 each) and creating a penalty for you in Q1, you identify it as a Q1 payment. Now each quarter shows a $10,000 payment. Problem solved.
IRA Rollover – and – Replace Solution
Late in the year, you realize you’re short $40,000 in estimated tax payments. To fix this, you take a $ 40,000 IRA distribution in December and request 100 percent withholding—so the entire $40,000 goes to the IRS. Within 60 days, you redeposit $40,000 back into the IRA, avoiding tax on the distribution. The $40,000 paid to the IRS is treated as tax withholding for the year and counts as if it were paid evenly across all four quarters. Problem solved.
Variation. You take the $40,000 on September 10 and apply it using the date-specific method. The $40,000 counts as an estimated tax payment on September 10.
Key point. IRC Section 3405(f) treats IRA withholding as wage withholding, so you use the specific-datemethod or the over-the-year method of applying the withholding to avoid the penalty for underpayment ofestimated tax.
Takeaways
Missing an estimated tax payment can trigger steep penalties—but smart use of withholding can rescue you.
Unlike estimated payments, withholding is treated as if it were made evenly throughout the year, or on the actual dates if you document them.
Whether through a year-end bonus, early W-2 withholding, or a fully withheld IRA distribution, you can use the withholding strategies to meet safe harbor rules and avoid penalties—even if you’re catching up at the last minute.
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