The Annualized Income Installment Method, Explained
The regular method assumes you earn your income evenly and asks for 25% of the required annual payment each quarter. If you earned most of it late in the year, that overstates what you owed early on. The annualized income installment method on Form 2210 Schedule AI fixes that (instructions).
The periods
| Period | Factor | Percentage | Installment due |
|---|---|---|---|
| Jan 1 – Mar 31 | 4 | 22.5% | April 15, 2026 |
| Jan 1 – May 31 | 2.4 | 45% | June 15, 2026 |
| Jan 1 – Aug 31 | 1.5 | 67.5% | September 15, 2026 |
| Jan 1 – Dec 31 | 1 | 90% | January 15, 2027 |
Using it
You pick the method when you file, and attach Schedule AI to Form 2210. If you use it for one installment you must use it for all of them, but the result can only lower the penalty. Lower early installments mean any shortfall moves to later quarters, where the penalty runs for fewer days.
An example
The app's sample: a freelance designer with $57,801.10 of net profit through October, projected to $72,004.78 for 2026. Estimated 2026 federal tax is $14,804.47; last year's tax was $9,800 (AGI $82,000), so the safe-harbor target is $9,800.00 — 100% of last year's tax, less than 90% of this year's ($13,324.02). Two $2,450 payments were made in April and June; September was missed.
| Installment | Regular (25% each) | Annualized (Schedule AI) | Paid |
|---|---|---|---|
| Q1 | $2,450.00 | $849.65 | $2,450.00 |
| Q2 | $2,450.00 | $1,610.28 | $2,450.00 |
| Q3 | $2,450.00 | $3,289.48 | $0.00 |
| Q4 | $2,450.00 | $4,050.59 | $0.00 |
The annualized method lowers the September requirement, so the shortfall since September 15 is smaller. Either way, $4,900.00 by January 15, 2027 reaches the safe harbor.
Last reviewed 2026-10-28. General information, not tax advice. Your tax adviser can tell you what applies to you.