Annualized Income Installment Method: Withholding and Estimated Tax (2026 IRS Guide)
This guide covers “Annualized Income Installment Method” within withholding and estimated tax. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.
Adapted from Publication 505 (2026), Tax Withholding and Estimated Tax, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.
Context for these rules
After you have figured your total estimated tax, figure how much you must pay by the due date of each payment period. You should pay enough by each due date to avoid a penalty for that period. If you don’t pay enough during any payment period, you may be charged a penalty even if you are due a refund when you file your tax return. The penalty is discussed in the Instructions for Form 2210.
Annualized Income Installment Method
If you don’t receive your income evenly throughout the year (for example, your income from a repair shop you operate is much larger in the summer than it is during the rest of the year), your required estimated tax payment for one or more periods may be less than the amount figured using the regular installment method.
The annualized income installment method annualizes your tax at the end of each period based on a reasonable estimate of your income, deductions, and other items relating to events that occurred from the beginning of the tax year through the end of the period. To see whether you can pay less for any period, complete the 2026 Annualized Estimated Tax Worksheet (Worksheet 2-9).
.You first must complete the 2026 Estimated Tax Worksheet (Worksheet 2-1) through line 14b..
Use the result you figure on line 32 of Worksheet 2-9 to make your estimated tax payments and complete your payment vouchers.
Note:
If you use the annualized income installment method to figure your estimated tax payments, you must file Form 2210 with your 2026 tax return. See Schedule AI—Annualized Income Installment Method in the Instructions for Form 2210 for more information.
Instructions for the 2026 Annualized Estimated Tax Worksheet (Worksheet 2-9)
.Use Worksheet 2-9 to help you follow these instructions..
The purpose of this worksheet is to determine your estimated tax liability as your income accumulates throughout the year, rather than dividing your entire year’s estimated tax liability by 4 as if your income was earned equally throughout the year. The top of the worksheet shows the dates for each payment period. The periods build; that is, each period includes all previous periods. After the end of each payment period, complete the corresponding worksheet column to figure the payment due for that period.
Line 1.
Enter your AGI for the period. This is your gross income for the period, including your share of partnership or S corporation income or loss, minus your adjustments to income for that period. See Expected AGI—Line 1, earlier.
Self-employment income.
If you had self-employment income, first complete Section B of this worksheet. Use the amounts on line 41 when figuring your expected AGI to enter in each column of Section A, line 1.
Line 4.
Be sure to consider deduction limits figured on Schedule A (Form 1040), such as the $40,400 ($20,200 for married individuals filing separately) limit on state and local taxes. Figure your deduction limits using your expected AGI in the corresponding column of line 1 (2026 Annualized Estimated Tax Worksheet (Worksheet 2-9)).
.For 2026, if you plan to take an itemized deduction for a charitable contribution, you can only deduct charitable contributions that are more than 0.5% of your AGI. Use Worksheet 2-5 to figure your expected charitable contribution deduction. Also, see Worksheet 2-6..
.For 2026, your total itemized deductions may be reduced if your taxable income is more than the amount shown next for your filing status. .
| Married filing jointly or Qualifying surviving spouse | $768,700 |
| Head of household or Single | $640,600 |
| Married filing separately | $384,350 |
If you expect your taxable income to be than this amount, use Worksheet 2-6. Also, see Worksheet 2-5 if you plan to take an itemized deduction for a charitable contribution..
Line 7.
If you won’t itemize your deductions, use Worksheet 2-4 to figure your standard deduction.
Line 12.
Generally, you will use the Tax Rate Schedules to figure the tax on your annualized income. However, see below for situations where you must use a different method to figure your estimated tax.
Tax on child’s investment income.
You must use a special method to figure tax on the income of the following children who have more than $2,700 of investment income.
Children under age 18 at the end of 2026.
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The following children if their earned income isn’t more than half their support.
Children age 18 at the end of 2026.
Children who are full-time students at least age 19 but under age 24 at the end of 2026.
Tax on net capital gain.
The regular income tax rates for individuals don’t apply to a net capital gain. Instead, your net capital gain is taxed at a lower maximum rate.
The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss.
Tax on qualified dividends and capital gains.
For 2026, your capital gain and dividends rate will depend on your income.
.Tax on capital gain or qualified dividends. If the amount on line 1 includes a net capital gain or qualified dividends, use Worksheet 2-10 to figure the amount to enter on line 12..
.Tax if excluding foreign earned income or excluding or deducting foreign housing. If you expect to claim the foreign earned income exclusion or the housing exclusion or deduction on Form 2555, use Worksheet 2-11 to figure the amount to enter on line 12..
Line 13.
Add the tax from Forms 8814, 4972, and 6251 for the period. Also, include any recapture of an education credit for each period. You may owe this tax if you claimed an education credit in an earlier year and you received either tax-free educational assistance or a refund of qualifying expenses for the same student after filing your 2025 return.
Use the 2025 forms or worksheets to see if you will owe any of the taxes just discussed. Figure the tax based on your income and deductions during the period shown in the column headings. Multiply this amount by the annualization amounts shown for each column on line 2 of the 2026 Annualized Estimated Tax Worksheet (Worksheet 2-9). Enter the result on line 13 of this worksheet.
Line 15.
Include all the nonrefundable credits you expect to claim because of events that will occur during the period.
Note:
When figuring your credits for each period, annualize any item of income or deduction to figure each credit. For example, if you need to use your AGI to figure a credit, use line 3 of Worksheet 2-9 to figure the credit for each column.
Line 18.
Add your expected other taxes.
Other taxes include the following.
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Additional tax on early distributions from:
An IRA or other qualified retirement plan,
A tax-sheltered annuity, or
A modified endowment contract entered into after June 20, 1988.
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Household employment taxes if:
You will have federal income tax withheld from wages, pensions, annuities, gambling winnings, or other income; or
You would be required to make estimated tax payments even if you didn’t include household employment taxes when figuring your estimated tax.
Amounts on Schedule 2 (Form 1040), lines 14 through 16, and 17a, 17c through 17j, 17l, and 17o through 17z and 19.
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Additional Medicare Tax. A 0.9% Additional Medicare Tax applies to your combined Medicare wages and self-employment income and/or your RRTA compensation that exceeds the amount listed in the following chart, based on your filing status.
Filing Status Threshold Amount Married filing jointly $250,000 Married filing separately $125,000 Single $200,000 Head of household $200,000 Qualifying surviving spouse $200,000 Medicare wages and self-employment income are combined to determine if your income exceeds the threshold. A self-employment loss should not be considered for purposes of this tax. RRTA compensation should be separately compared to the threshold.
Your employer is responsible for withholding the 0.9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays you in excess of $200,000 in 2026. You should consider this withholding, if applicable, in determining whether you need to make an estimated payment.
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Net Investment Income Tax (NIIT). The NIIT is 3.8% of the lesser of your net investment income or the excess of your MAGI over a specified threshold amount. Threshold amounts:
Filing Status Threshold Amount Married filing jointly $250,000 Married filing separately $125,000 Single $200,000 Head of household $200,000 Qualifying surviving spouse $250,000
Line 20.
Include all the refundable credits (other than withholding credits) you can claim because of events that occurred during the period. These include the earned income credit, additional child tax credit, fuel tax credit, net premium tax credit, refundable adoption credit, and refundable American opportunity credit.
Note:
When figuring your refundable credits for each period, annualize any item of income or deduction used to figure each credit.
Line 29.
If line 28 is smaller than line 25 and you are not certain of the estimate of your 2026 tax, you can avoid a penalty by entering the amount from line 25 on line 29.
Line 31.
For each period, include estimated tax payments made and any excess social security and railroad retirement tax.
Also, include estimated federal income tax withholding. One-fourth of your estimated withholding is considered withheld on the due date of each payment period. To figure the amount to include on line 31 for each period, multiply your total expected withholding for 2026 by:
25% (0.25) for the first period,
50% (0.50) for the second period,
75% (0.75) for the third period, and
100% (1.00) for the fourth period.
However, you may choose to include your withholding according to the actual dates on which the amounts will be withheld. For each period, include withholding made from the beginning of the period up to and including the payment due date. You can make this choice separately for the taxes withheld from your wages and all other withholding. For an explanation of what to include in withholding, see Total Estimated Tax Payments Needed—Line 14a, earlier.
Nonresident aliens.
If you will file Form 1040-NR and you don’t receive wages as an employee subject to U.S. income tax withholding, the instructions for the worksheet are modified as follows.
Skip column (a).
On line 1, enter your income for the period that is effectively connected with a U.S. trade or business.
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On line 21, increase your entry by the amount determined by multiplying your income for the period that isn’t effectively connected with a U.S. trade or business by the following.
72% (0.72) for column (b).
45% (0.45) for column (c).
30% (0.30) for column (d).
However, if you can use a treaty rate lower than 30%, use the percentages determined by multiplying your treaty rate by 2.4, 1.5, and 1, respectively.
On line 26, enter one-half of the amount from line 14c of the Form 1040-ES (NR) 2025 Estimated Tax Worksheet in column (b) and one-fourth in columns (c) and (d) of Worksheet 2-9.
On lines 24 and 27, skip column (b).
On line 31, if you don’t use the actual withholding method, include one-half of your total expected withholding in column (b) and one-fourth in columns (c) and (d).
Using the guidance
Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.
Sources and further reading
- Publication 505 (2026), Tax Withholding and Estimated Tax: Estimated Tax for 2026 — How To Figure Each Payment — Annualized Income Installment Method — Internal Revenue Service; 2026 edition.
The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.