7 min read ยท Last updated September 21, 2026
- You avoid the IRS (Internal Revenue Service) underpayment penalty if your withholding plus timely payments equal the smaller of 90% of this year’s tax or 100% of last year’s tax, 110% if your prior-year income was over $150,000.
- A revised W-4 lets you add a flat extra dollar amount to each paycheck through Step 4(c). The IRS’s own method for a mid-year fix is to take your shortfall and divide it by the pay periods you have left, not by 12 months.
- 2026 quarterly estimated payments are due April 15, June 15, September 15, and January 15, 2027, and money paid late accrues interest at 7% per year, compounded daily, as of the current quarter.
- The safe-harbor floor is not your final tax bill. It only shuts off the penalty for underpaying during the year; you can still owe the difference when you file.
A raise that changes your salary line doesn’t automatically change your paycheck’s withholding, and the number that determines whether you’ll owe a penalty at filing is a percentage of last year’s tax bill, not a percentage of this year’s higher income.
In this article
- The number that actually protects you isn’t your new salary
- Two tools that fix the gap
- Doing the math for what’s left in the year
- What happens if she does nothing
- Frequently asked questions
Her raise landed the first week of July and pushed her projected tax bill for the year up by $2,800, from $8,400 to $11,200. Her paycheck’s withholding never adjusted to match it, the same kind of mismatch that shows up whenever a lump sum or income jump lands mid-year without a plan for where the extra dollars are supposed to go.
The number that actually protects you isn’t your new salary
The IRS doesn’t require you to have paid your exact final tax bill by December 31. It requires your withholding plus any timely estimated payments to hit a specific floor, called the safe harbor, or you owe an underpayment penalty on top of whatever tax you still owe at filing. Per IRS Topic no. 306, you generally avoid the penalty if you paid at least “90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.” If your prior-year adjusted gross income (AGI, the income figure left after certain above-the-line deductions) was over $150,000, or $75,000 if you file separately from a spouse, that 100% becomes 110%, according to the Instructions for Form 2210.
Run the actual numbers for a $2,800 mid-year raise on a prior-year bill of $8,400: 90% of this year’s projected $11,200 is $10,080, and 100% of last year’s $8,400 is $8,400. The rule uses whichever is smaller, so the real floor is $8,400, not $10,080 and not the full $11,200 she’ll eventually owe.
The 110% version of the rule only matters to higher earners. If her prior-year AGI had been over $150,000, the safe harbor would use 110% of $8,400, or $9,240, instead of the full 100% figure. That $9,240 is still below the 90%-of-current-year test of $10,080, so it would still be the binding floor either way. The 110% rule exists specifically to stop higher-income taxpayers from using a low prior-year bill to cover a much bigger current-year jump, which is exactly the scenario a mid-year raise creates.
Two tools that fix the gap, and they run on different clocks
If you’re still on a payroll that withholds taxes, a revised Form W-4 is usually the simpler fix. Step 4(c) of the form lets you add a flat extra dollar amount to be withheld from every remaining paycheck, and the IRS’s own instructions describe it plainly: “Entering an amount here will reduce your paycheck and will either increase your refund or reduce any amount of tax that you owe when you file your tax return,” per the 2026 Form W-4 instructions.
Quarterly estimated payments are the other tool, and they matter most if you have income that isn’t subject to payroll withholding at all, such as freelance work, a bonus paid outside normal payroll, or investment income. 2026 Form 1040-ES sets the payment due dates at April 15, June 15, and September 15, 2026, with the fourth payment due January 15, 2027, unless you file your full 2026 return and pay the balance by February 1, 2027.
| Factor | Revised W-4 (Step 4c) | Quarterly estimated payments |
|---|---|---|
| Best for | Income that already goes through a payroll withholding system | Freelance, bonus, or investment income with no withholding at all |
| How the correction is applied | Spread evenly across your remaining paychecks | Paid in up to 4 lump sums on set IRS due dates |
| How fast it takes effect | Usually the next 1 to 2 pay cycles after your employer processes it | Only on the payment date you actually send it |
| What you have to calculate | Your shortfall divided by pay periods remaining | Your shortfall divided by the payment periods remaining |
| Paperwork | New Form W-4 filed with your employer | Form 1040-ES voucher and a direct payment or online transfer |
Doing the math for what’s actually left in the year
The IRS’s own worksheet for a mid-year correction doesn’t divide your shortfall by 12 months. Publication 505 tells you to “divide that amount by the number of paydays remaining in 2026 for that job. This will give you the additional amount to enter on the Form W-4.”
Apply that to her numbers: her raise landed with the first July paycheck on a biweekly payroll, which leaves roughly 12 pay periods between then and the end of December. If she needs to close a shortfall to hit the $8,400 safe-harbor floor, dividing that shortfall across 12 remaining paychecks, not 26 for the full year and not 6 remaining months, is the number Publication 505’s own worksheet produces.
What happens if she does nothing
Skip the correction entirely and the IRS treats the underpaid amount as if it were a short-term loan, charging interest rather than a flat fine. The current rate is 7% per year, compounded daily, confirmed for both the current quarter and the next one in the IRS’s own interest rate announcement. That rate resets every quarter, so a gap left unaddressed in September compounds at whatever rate is current when the IRS eventually calculates the interest at filing, not at today’s rate necessarily.
For her specific numbers, waiting until filing season to deal with the gap means the roughly $2,800 shortfall between her $8,400 safe harbor and her $11,200 actual liability keeps accruing at whatever the quarterly rate happens to be each time the IRS recalculates it, on top of the $2,800 she already owes regardless of when she pays it. Closing part of that gap now, through either tool above, doesn’t change what she ultimately owes the IRS. It only stops interest from compounding on the part she waits to pay.
Frequently asked questions
Do I have to hit 100% of my exact final tax bill by December 31? No. The safe harbor only requires the smaller of 90% of this year’s tax or 100% of last year’s tax, 110% if your prior-year income was over $150,000. Hitting that floor avoids the underpayment penalty even if you still owe additional tax when you file.
Is adjusting my W-4 or paying quarterly estimated taxes better after a raise? It depends on where the extra income is coming from. If it’s a raise on the same payroll job, a revised W-4 with an added Step 4(c) amount is usually simpler, since your employer does the math each pay period. If the income has no withholding attached at all, such as freelance or investment income, quarterly estimated payments are the only tool that reaches it.
How do I figure out how much extra to withhold from each remaining paycheck? Take your total projected shortfall for the year and divide it by the number of pay periods you have left, not by the number of months left. The IRS’s own Publication 505 worksheet uses this exact method for a mid-year correction.
What happens if I underpay and don’t fix it? The IRS charges interest on the underpaid amount rather than a flat penalty, currently 7% per year compounded daily. That’s on top of the tax you already owe, so the longer a known gap sits uncorrected, the more it costs to close later.
Did the 2025 tax law change the safe-harbor percentages? No. The One Big Beautiful Bill Act (OBBBA), the 2025 federal tax law, changed several deductions and the W-4 form’s layout. It left the 90%/100%/110% safe-harbor test itself untouched, according to the current Form 2210 instructions’ own summary of what changed.