Q3 Estimated Taxes Are Due September 15: How to Hit Safe Harbor and Avoid the Underpayment Penalty

Every September we get some version of the same call. Someone has had a better year than they planned for, they have been sending the IRS the same quarterly amount they picked back in April, and now they want to know how much trouble they are in.

The answer is usually less than they think. There is a rule that lets you pay a fixed, known amount every quarter and be completely protected from the underpayment penalty, no matter how big the year turns out to be. Most people have heard of it. Very few use it deliberately.

What is actually due on September 15

Three things land on the same date this year.

• The third installment of your 2026 estimated tax. Despite the name, it covers June 1 through August 31, not a calendar quarter. The four periods are not equal, which trips up people who set a monthly transfer and assume it works out.
• Extended 2025 Forms 1120-S and 1065. If you are a partner or an S corp shareholder who has been waiting on a K-1 to size your own payment, these two deadlines collide, and the K-1 usually arrives too late to help.
• State estimated payments in most states, including Georgia.

The fourth and final installment for 2026 is due January 15, 2027. For the rest of the calendar, see our full 2026 tax due date calendar.

The penalty is not really a penalty

This matters more than it sounds. What the IRS charges for underpaid estimated tax is technically an addition to tax under Section 6654, but it is calculated as interest: the federal short-term rate plus three percentage points, compounded daily.

For 2026 that rate has been 7% for the first quarter, 6% for the second, and 7% for the third and fourth. It is not deductible.

The part that changes your strategy is this: the charge is computed separately for each installment period, running from that period’s due date until the money actually arrives. A large payment in January does not retroactively fix a shortfall from April. We talk to business owners every year who assumed it would. The April money stops the clock going forward. It does nothing about the nine months that already ran.

Three ways to be safe

Start with the exemption. If you expect to owe less than $1,000 after withholding and refundable credits, you do not need to make estimated payments at all.

Above that, you are protected if your payments and withholding for the year reach any one of these:

• 90% of your actual 2026 tax.
• 100% of your 2025 tax.
• 110% of your 2025 tax, if your 2025 adjusted gross income was over $150,000, or over $75,000 if you file married separately.

The prior-year tests come with two conditions people forget. Your 2025 tax year has to have been a full twelve months, and you have to have actually filed a 2025 return. A first-year business has no prior year to lean on and is stuck with the 90% test.

For most owners, the prior-year number is the one to use, and the reason is simple. It is a number you already know. You can look it up on line 24 of last year’s Form 1040, multiply, divide by four, and stop thinking about it.

What that looks like with real numbers

Say your 2025 total tax was $60,000 and your 2025 AGI was $220,000. Because you are over the $150,000 line, your safe harbor is 110% of $60,000, which is $66,000. Divide by four and you owe $16,500 per installment.

Now suppose 2026 turns out to be a very good year and your actual tax comes to $95,000. If you paid $16,500 in April, June and September and pay the fourth in January, you owe no underpayment charge at all. You will still owe the remaining $29,000 when you file, and that balance is due by April 15, 2027, but the year itself costs you nothing in interest.

If you want to run your own figures rather than ours, our quarterly tax estimator will do the arithmetic.

Why 2026 might be the year to use the 90% test instead

There is a version of this where the prior-year safe harbor is the wrong choice, and 2026 is the first year it has come up often.

Several provisions from the One Big Beautiful Bill Act apply to a full tax year for the first time in 2026, including deductions for qualified tips and overtime, the additional deduction for taxpayers 65 and older, and the higher state and local tax cap. If any of those apply to you, your 2026 tax can land meaningfully below your 2025 tax. Paying 110% of last year in that situation means lending the Treasury money at zero interest for a year.

The trade is straightforward. The prior-year test uses a number you know and gives you certainty. The 90% test uses a number you are estimating and gives you cash. If your 2026 income is up or hard to predict, take the prior-year safe harbor and stop worrying about it. If 2026 is clearly lower and you can project it with some confidence, run the 90% test and keep the difference in your own account.

When your income does not arrive in four equal pieces

The default rules assume you earned your income evenly across the year. Plenty of businesses do not.

If you closed most of your revenue in the fourth quarter, equal installments mean you overpaid in April and June for money you had not yet made. The annualized income installment method fixes that. You compute each installment against the income you actually received in that period, using Schedule AI on Form 2210, and your required payments follow the shape of your year.

It costs you something. You need clean interim numbers for each period, and Form 2210 gets considerably longer. It is worth it when the pattern is genuinely lopsided: consulting firms with a small number of large engagements, seasonal businesses, anyone who sold an asset or a business late in the year. It is not worth it for a business with steady monthly revenue.

This is also the method most commonly missed on returns we take over from another preparer. If your income is lumpy and nobody has ever mentioned Schedule AI to you, that is worth a conversation.

The withholding trick, for anyone already behind

If you are reading this in September and you know you underpaid in April, this section is the useful one.

Tax withheld from wages or from a retirement distribution is treated as paid evenly throughout the year, regardless of when it was actually withheld. An estimated tax payment is credited on the date you make it. Those two rules are not the same, and the difference is worth money.

So if you or your spouse has W-2 income, increasing withholding for the remainder of 2026 can cure an earlier shortfall in a way that writing a check on September 15 cannot. Same dollars, better date. The same logic applies to withholding on a year-end retirement distribution, which is why some retirees deliberately take their required distribution in December with a large withholding percentage attached.

State, multi-state and non-resident filers

Federal safe harbor does nothing for you at the state level. Georgia has its own estimated payment requirement on Form 500-ES, its own thresholds and its own interest charge, assessed independently of anything the IRS does. If you operate in more than one state, each one has its own rules and several of them do not mirror the federal safe harbor percentages.

Two situations we deal with constantly, and neither is covered well anywhere else:

• Non-residents with income effectively connected to a U.S. trade or business file Form 1040-NR and are subject to the same estimated tax regime, including the same safe harbor. Having no U.S. bank account is not an exemption.
• Corporations play a different game entirely. They use Form 1120-W to compute installments, and a large corporation, generally one with $1 million or more of taxable income in any of the three preceding years, cannot use the prior-year safe harbor for anything after the first installment. If you are running a C corporation that just had a breakout year, do not assume last year’s number protects you.

If you already missed April or June

Pay what you can, as soon as you can. Interest stops accruing on an amount the day it is credited, so a payment made in September still shortens the meter on the April shortfall even though it does not erase it.

Do not skip the September installment because you are behind on the earlier ones. That compounds the problem rather than deferring it.

Look at the withholding option above before you do anything else. It is the only lever that reaches backward.

And in a narrow set of cases the charge can be waived: casualty, disaster, or if you retired after turning 62 or became disabled during the year, and the underpayment was due to reasonable cause rather than neglect. It is a request, not a right, and it is rarer than people hope, but it exists.

How to pay

Individuals can pay through IRS Direct Pay or an IRS Online Account with no fee. Businesses use EFTPS or a Business Tax Account, and EFTPS enrollment takes several days, so that is not a September 14 project. Georgia payments go through the Georgia Tax Center separately.

Whichever route you take, the payment has to be dated September 15. A transfer initiated on the 16th is late by one day and by one full installment period.

Where this fits

The September installment is the last one you can adjust with three and a half months of the year still ahead of you. If your 2026 numbers have drifted from what you assumed in April, this is the moment to reset the payment and to start the rest of your 2026 year-end tax planning while the moves are still available.

Manay CPA works with self-employed professionals, multi-state businesses and foreign-owned U.S. entities across all 50 states. If you are not sure whether you are over-paying or under-paying, a short estimated tax review will tell you, and September is a considerably better month to find out than April.

REFERENCES

• IRS, Publication 505, Tax Withholding and Estimated Tax
• IRS, Form 1040-ES, Estimated Tax for Individuals, and instructions
• IRS, Form 2210 and Schedule AI, Underpayment of Estimated Tax by Individuals, Estates and Trusts
• Internal Revenue Code Section 6654 (individuals) and Section 6655 (corporations)
• IRS, Revenue Ruling 2026-15 and news release IR-2026-98, quarterly interest rates for the period beginning October 1, 2026
• IRS, Estimated Taxes, irs.gov/businesses/small-businesses-self-employed/estimated-taxes
• Georgia Department of Revenue, Form 500-ES, Individual and Fiduciary Estimated Tax