# The January 15 Deadline: How Self-Employed Marylanders Avoid the Underpayment Penalty

- Link: https://hamtock.com/fourth-quarter-estimated-taxes-january-15/
- Published: 2026-11-02T14:35:10-05:00
- Author: HAMTOCK Consulting

If you are self-employed, own a pass-through business, or earn income with no tax
withheld, the IRS expects you to pay as you go. The fourth and final estimated payment
for the 2026 tax year is due **January 15, 2027**. Miss it, or pay too little across
the year, and you owe an underpayment penalty on top of the tax. The good news is
that the rules are predictable, and December is the right time to check where you
stand.

## Who has to make estimated payments

The IRS [estimated tax rules](https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes)
apply when you expect to owe at least $1,000 in federal tax after withholding and
credits. In practice that means sole proprietors, independent contractors, partners,
S corporation shareholders, landlords with net rental income, and anyone with significant
investment or side income. Many of our clients are W-2 employees with a growing 
side business; they are often surprised that the side income is not covered by their
paycheck withholding.

## The safe-harbor rules in plain English

The penalty is not about owing money in April. It is about paying too little during
the year. You avoid it if your payments and withholding for 2026 reach either of
two marks:

 * **90% of your actual 2026 tax**, or
 * **100% of your 2025 tax** (110% if your 2025 adjusted gross income was more than
   $150,000, or $75,000 if married filing separately).

Whichever is smaller is enough. Most people with rising income use the prior-year
test because the number is already known: look at the total tax line on your 2025
return, apply 100% or 110%, divide by four, and that is each quarterly payment. 
If your income dropped this year, the 90% test may let you pay less, but it requires
a real estimate of this year’s tax.

## How the penalty is calculated

The underpayment penalty is interest, not a flat fine. The IRS computes it on [Form 2210](https://www.irs.gov/forms-pubs/about-form-2210)
quarter by quarter at the federal short-term rate plus three points, from the date
each payment was due until it was paid. Two consequences follow. First, a payment
made late still reduces the penalty, so it is never too late to catch up. Second,
missing the first quarter costs more than missing the fourth, because the interest
runs longer.

## Maryland has its own schedule

Maryland requires quarterly estimated payments too, filed with the [Comptroller of Maryland](https://www.marylandtaxes.gov/),
and its fourth installment is also due in mid-January. Montgomery County residents
pay the county income tax through the same Maryland payment. If you have been paying
the federal estimate and forgetting the state one, you may have two penalties, not
one. Our [year-end tax planning](https://hamtock.com/year-end-tax-planning-maryland-small-business/)
checklist covers the Maryland side in more detail.

## A December check in four steps

 1. **Add up what you have paid.** Federal estimates, Maryland estimates, and any withholding
    from a W-2 job or a pension.
 2. **Estimate your 2026 tax.** Use your books through November and a reasonable December.
    For a pass-through business, net profit is the starting point; remember self-employment
    tax on top of income tax.
 3. **Compare with the safe harbor.** If paid-in reaches 100% (or 110%) of last year’s
    tax, you are done. If not, the January 15 payment should close the gap.
 4. **Decide how to pay the gap.** An estimated payment on January 15 is the normal
    route. If you also have a W-2 job, raising your December withholding is often better:
    the IRS treats withholding as paid evenly through the year, which can erase a penalty
    that an estimated payment made in January would not.

## Two shortcuts worth knowing

 * **File early instead.** If you file your 2026 return and pay the full balance
   by **January 31, 2027**, you can skip the January 15 estimated payment altogether.
 * **Annualize if your income is seasonal.** If most of your income arrives late
   in the year, the annualized income method on Form 2210 can reduce or remove the
   penalty for the earlier quarters. It takes more paperwork, but for event businesses,
   retailers and consultants with a strong fourth quarter it is often worth it.

## Key takeaways

 * The last 2026 estimated payment is due January 15, 2027, for both the IRS and
   Maryland.
 * Pay 100% of last year’s tax (110% above $150,000 of prior-year income) or 90%
   of this year’s, and there is no penalty.
 * The penalty is interest, so a late payment still helps.
 * Extra December withholding from a W-2 job can fix a shortfall that an estimated
   payment cannot.

This article is general information, not tax advice for your specific situation.
The rules are current as of November 2026. If you would like us to run the December
check for you, our [tax planning service](https://hamtock.com/what-we-do/tax-planning/)
includes an estimated payment schedule built from your actual numbers. Related reading:
[the new $40,400 SALT cap](https://hamtock.com/salt-deduction-cap-2026-maryland/).