A lot can change between the beginning of the year and the final months of 2026. Your business may be more profitable than expected. You may have received a bonus, sold an investment, exercised stock options, or learned that your partnership or S corporation income will be higher than anticipated.
Those are generally good developments, but they can also create an unwelcome surprise at tax time if your withholding and estimated payments have not kept pace. That is why a tax checkup should look at your projected income for the entire year. Simply doubling the income earned during the first six months will not provide an accurate picture when revenue, bonuses, investment activity, or business distributions fluctuate throughout the year.
Start With a Full-Year Projection
An updated projection should include all the income you expect to receive or report for 2026. This includes wages, bonuses, commissions, taxable fringe benefits, interest, dividends, rental income, capital gains, self-employment income, and income passing through from a partnership or S corporation.
Your deductions and credits also matter. For 2026, the standard deduction is $16,100 for single taxpayers and married individuals filing separately, $32,200 for married couples filing jointly and qualifying surviving spouses, and $24,150 for heads of household.
Depending on your circumstances, the projection may also need to consider several newer deductions. These include up to $25,000 of qualified tips, up to $12,500 of qualified overtime compensation or $25,000 for married couples filing jointly, up to $10,000 of qualifying passenger-vehicle loan interest, and an enhanced senior deduction of up to $6,000 per qualifying person. Each deduction has its own eligibility requirements and income limits, so the maximum amount will not apply to everyone.
The goal is to develop a realistic picture of your total 2026 tax liability while there is still time to make adjustments.
Will Your Withholding and Estimated Payments Be Enough?
In general, estimated tax payments may be required when you expect to owe at least $1,000 after subtracting withholding and tax credits, and your projected withholding and credits are less than the smaller of:
- 90% of the tax you expect to owe for 2026,
- 100% of the total tax shown on your 2025 return.
For taxpayers whose 2025 adjusted gross income exceeded $150,000, or $75,000 for married taxpayers filing separately, the prior-year amount generally increases from 100% to 110% of the 2025 tax.
That comparison is commonly called a safe harbor. The name can be misleading, however. Meeting a safe harbor may help you avoid an underpayment penalty, but it does not eliminate the tax you owe.
For example, suppose your business performs much better than expected and your estimated payments satisfy the prior-year safe harbor. You might avoid an underpayment penalty while still owing a significant balance when your return is filed. Safe harbor does not necessarily mean paid in full.
Review Your Remaining Estimated Payments
The remaining general estimated-tax deadlines for the 2026 tax year are September 15, 2026, and January 15, 2027.
Estimated payments are generally calculated by dividing the required annual payment into four installments. However, business income rarely arrives in four perfectly equal portions. A large contract, year-end distribution, capital gain, or bonus can cause income to be heavily concentrated in one part of the year.
When income is uneven, the annualized income installment method may better match estimated payments to when the income was actually earned. This can potentially reduce the amount required for an earlier period in which the income did not yet exist. Taxpayers using this method generally file Form 2210 with their tax return.
Timing matters because estimated-tax underpayments are evaluated by payment period. It is possible to receive a refund when filing your return and still face an underpayment penalty because enough tax was not paid during an earlier period.
Do Not Assume Bonus Withholding Is Enough
Bonuses and commissions are taxable compensation. When a bonus is paid separately from regular wages, an employer may use a flat 22% withholding rate under the applicable payroll procedures.
That 22% is only a withholding method. It is not necessarily the rate you will ultimately pay on the bonus.
If the additional income pushes you into a higher tax bracket or creates exposure to Additional Medicare Tax or Net Investment Income Tax, the amount withheld may fall short of the actual liability. Before receiving a substantial bonus, obtain the expected gross amount, payment date, and projected withholding from payroll so those figures can be incorporated into your tax projection.
If more tax needs to be paid, an employee may submit a revised Form W-4 and request additional withholding in Step 4(c). Pension recipients can generally adjust withholding on periodic payments using Form W-4P, while Form W-4R applies to nonperiodic distributions.
Equity Transactions Can Create More Than One Tax Event
Stock options, restricted stock, and other forms of equity compensation require a closer look because the tax treatment depends on the type of award and the timing of the transaction.
A nonstatutory stock option may produce taxable income when it is received, exercised, or disposed of, depending on the circumstances. A statutory stock option generally does not produce income until the stock is sold or exchanged. Restricted stock or other restricted property is generally included in income when it becomes substantially vested unless an available election is made to include the value earlier.
The amount withheld when stock is exercised or vested may not equal the final tax liability. A later sale can also create a separate capital gain or loss. Because investment income is not always subject to withholding, an additional estimated payment may be necessary.
Business Owners Should Project Income, Not Just Distributions
Owners of partnerships and S corporations sometimes assume their taxable income will match the cash they receive from the business. That is not always the case.
Partnership and S corporation income generally passes through to the owners based on their distributive or pro rata share. An owner can therefore be allocated taxable income even when the related cash distribution is smaller or has not yet been made.
Consider a business that retains cash for equipment, debt payments, or working capital. The owners may receive limited distributions while still reporting their share of the business’s taxable income. Reviewing only the money deposited into a personal bank account could substantially understate the owner’s projected tax liability.
Self-employment tax should also be included when applicable. For 2026, the estimated-tax calculation uses a $400 net-earnings threshold, a Social Security wage base of $184,500, a 12.4% Social Security rate, and a 2.9% Medicare rate. Generally, one-half of the calculated self-employment tax is deductible.
Higher-income taxpayers may also need to account for Additional Medicare Tax and the 3.8% Net Investment Income Tax. Both involve separate rules and income thresholds that should be considered as part of the overall projection.
What Should You Gather for a Tax Checkup?
To update your 2026 projection, begin by gathering your latest pay statement showing year-to-date federal withholding, records of estimated-tax payments already made, and your 2025 tax return.
Business owners should also provide a current profit-and-loss statement and an updated estimate of partnership or S corporation income. Include information about expected bonuses, commissions, stock transactions, capital gains, dividends, interest, deductions, credits, and any other significant changes since the original projection was prepared.
With that information, your accountant can estimate your total 2026 tax, compare your projected payments with the applicable safe harbor, and determine whether the remaining shortfall should be addressed through additional withholding, estimated-tax payments, or a combination of the two.
A Tax Projection Should Change When Your Year Changes
A tax plan prepared at the beginning of the year is based on what was known at that time. It should not be placed in a drawer and treated as final when the underlying numbers have changed.
Whenever your compensation, business results, investment income, equity transactions, or pass-through income changes materially, your projection should be updated. A timely review cannot make the tax disappear, but it can help you manage cash flow, make more informed decisions, and avoid finding out in April that your tax plan has been running several months behind your actual business.
