Your Sept. 15 Estimated Tax Payment Is Due. The IRS Penalty Rate Stays at 7% Through Year-End

Paying quarterly taxes and wondering what it costs if the Sept. 15 check is short? The answer for the rest of 2026 is 7% a year. The IRS published Revenue Ruling 2026-15 in the Aug. 31 Internal Revenue Bulletin, and it keeps the underpayment rate at 7% for October through December ^{[1, 2]}. That’s the rate on unpaid tax, and it’s also the rate behind the penalty for late or short estimated payments. If you’re self-employed, a partner, an S corporation owner or anyone else with income nobody withholds on, this is your number.

What the IRS set for the fourth quarter

Here’s the short version. For the quarter that starts Oct. 1, 2026 ^{[1, 2]}:

• 7% on underpayments (tax owed but not paid)
• 7% on overpayments for individuals, 6% for corporations
• 4.5% on the part of a corporate overpayment above $10,000
• 9% on large corporate underpayments

Nothing moved. The IRS called the rates the same as the quarter now ending ^[1].

The revenue ruling also spells out the part small business owners tend to miss. The underpayment rate “applies in determining the addition to tax” for failing to pay estimated tax, under section 6654 for individuals and section 6655 for corporations ^[2]. “Addition to tax” is the code’s polite name for the penalty. So the 7% isn’t only about old balances. It’s the meter that runs when a quarterly payment comes in late or light ^[2].

Where the 7% comes from

The IRS doesn’t pick this number. For individuals, the law sets the underpayment rate at the federal short-term rate plus 3 percentage points ^{[1, 2]}. The Treasury determines that short-term rate each month under section 1274(d) of the tax code, and the rate set during July 2026, rounded to the nearest full percent, came to 4% ^[2]. Four plus three is seven.

The calendar matters here. The rate the Treasury determines in the first month of a quarter applies in the next quarter ^[2]. July’s figure sets October through December. The figure determined in October will set January through March 2027.

For a sense of where short-term rates sat this summer, the Federal Reserve held its policy range at 3.5% to 3.75% on July 29 ^[5]. The vote was 9-3. Three members, Beth Hammack, Neel Kashkari and Lorie Logan, wanted to raise the range a quarter point; the majority did not ^[5]. The IRS formula doesn’t use the Fed’s target, so treat that as background, not a forecast.

Do you owe a Sept. 15 payment?

The general rule on Form 1040-ES: you must pay estimated tax for 2026 if both of these are true ^[3]:

• You expect to owe at least $1,000 after subtracting withholding and refundable credits.
• Your withholding and credits will come to less than the smaller of 90% of your 2026 tax or 100% of your 2025 tax (the 2025 return has to cover all 12 months).

Two adjustments. If your 2025 adjusted gross income was over $150,000 ($75,000 if married filing separately), swap 110% in for 100% ^[3]. If at least two-thirds of your gross income comes from farming or fishing, the 90% becomes 66 2/3%, and you can pay the whole year’s estimate by Jan. 15, 2027, or file and pay in full by March 1, 2027 ^[3].

The four dates for calendar-year filers are April 15, June 15 and Sept. 15, 2026, plus Jan. 15, 2027 ^[3]. You can skip the January payment if you file your 2026 return by Feb. 1, 2027, and pay the whole balance with it ^[3].

Two hypotheticals, with numbers from the rules above:

A hypothetical freelance photographer owes $4,000 per installment and misses Sept. 15, then catches up on Dec. 31. The penalty is figured on each underpayment for the number of days it stays unpaid ^[3]. That’s 107 days, all at 7% ^{[1, 2]}. A rough figure: $4,000 times 7% times 107/365, or about $82. Not a disaster. But it’s a cost with nothing to show for it, and it keeps growing until the payment lands.

A hypothetical IT consultant had 2025 AGI of $180,000 and $30,000 of tax on that return. Because her AGI topped $150,000, the prior-year safe harbor is 110%, or $33,000 for 2026 ^[3]. In four equal installments, that’s $8,250 each. If 2026 turns out to be a bigger year, paying on that schedule still keeps her clear of the penalty under the 110% test, even if she owes a balance when she files ^[3].

If your income arrived late in the year, the equal-installment assumption may overstate what you owed in the spring. The annualized income installment method, filed on Form 2210 with Schedule AI, is built for that ^[3]. It’s worth a question to whoever prepares your return.

What to do before Sept. 15

Pay electronically if you can. Form 1040-ES lists IRS Direct Pay, the Electronic Federal Tax Payment System (EFTPS) and your IRS Online Account ^[3]. In an Aug. 28 release, the IRS pointed out that the individual Online Account lets you schedule payments up to 365 days ahead, and that Business Tax Account, open to sole proprietors, partnerships, S corporations and C corporations among others, handles federal tax deposits and other payments for eligible users ^[4].

If you mail a check, mail it early. A U.S. Postal Service postmark on or before the due date counts as the payment date ^[3]. But the 2026 form warns that the postmark “is the date the return is processed at a facility,” which “may or may not be the date you drop your payment off in the mailbox” ^[3].

What I’m keeping an eye on

A mailbox rule for electronic payments. Today the mailbox rule, the principle that timely mailing counts as timely paying, doesn’t cover electronic payments ^[6]. The Taxpayer Assistance and Service Act would treat an electronic payment authorized by the due date as made on that date if the IRS receives it within three business days, starting one year after enactment ^[6]. The same bill would let independent contractors ask clients to withhold income tax, an alternative to quarterly estimates, with Treasury rules due within 18 months ^[6]. The Senate Finance Committee approved it 26-1 on July 30, and it moves to the full Senate ^[7]. Sen. Mike Crapo said “such broad consensus signals we are on the right path,” and Sen. Ron Wyden called it “an important step towards common sense reforms” ^[7]. The House passed its own electronic mailbox bill, H.R. 1152, on March 31 ^[7]. I went through the bill’s small business title in July’s column on the TAS Act.

The January rate. The underpayment rate for January through March 2027 will come from the federal short-term rate the Treasury sets in October ^[2]. That’s the rate on anything still unpaid when the Jan. 15 installment comes due.

— Sally