Posted on Friday, 17th April 2026 by

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Taxes are a conundrum that creates widespread confusion due to constant changes and the sheer volume of regulations governing every aspect of completing our tax returns.  I’ve used TurboTax since its inception, and that has calmed the waters for my family to a point. Yet every time you turn around, another taxing challenge rears its head, affecting our benefits.

I’ve tried using IRS Form 1040-ES (Estimated Tax for Individuals) several times and typically give up after about 15 minutes. It’s too confusing and downright frustrating, to say the least. There is an easier way to get to a ballpark figure that I’ve used for several years.

David D, one of our newsletter subscribers, recently sent me an outline of how he determines his quarterly estimated taxes. He uses a similar procedure. I expanded on his outline and included tax tables, explanations, and a sample you can use to estimate your payments.

Typically, if your income doesn’t change much from year to year, it isn’t a problem; it’s when you have unanticipated capital gains, increasing RMDs, unanticipated TSP withdrawals, additional interest income, or have a part-time job or small business that can muddy the water.

Also, as we age, our Required Minimum Distributions increase every year, and before you know it, you’re in another tax bracket. That means your Medicare Premiums are sure to increase as well; that’s for another article.

Getting Started

Many self-employed individuals, contractors, and retirees with non-withheld income struggle with a recurring challenge: determining how much in estimated taxes to pay the IRS each quarter to avoid penalties. The good news is that you don’t need complicated software or a tax degree to make a reliable estimate. With a few basic numbers and a simple formula, you can calculate quarterly payments that keep you compliant and avoid underpayment penalties.

Start With Your Expected Annual Income

Begin by estimating your total taxable income for the year. Print out this article and enter the amount of income for each of the items listed below. Include all sources, regardless of whether you have federal taxes withheld. You will deduct federal tax withholdings for each entry to determine the total amount of estimated taxes to submit for the year:

  • $__________ Pensions (Approximately 90% to 98% of a FERS or CSRS federal pension is taxable annually, my 1099-R from 2025 shows that 3% of my annuity wasn’t taxed.) You can deduct that amount from your total if desired.
    • Federal tax withheld $_________
  • $__________ *Social Security Income (Taxed at 50 to 85% for many)
    • Federal tax withheld $_________
  • $__________Part-time work
    • Federal tax withheld $_________
  • $__________ Self‑employment income (Net)
    • $__________ Add tax of 15.3% (Add to taxes due for this year)
  • $__________ Consulting fees
  • $__________ Taxable Investment income (Sum of the list below)
    • Interest
    • **Dividends
    • ***Capital Gains
  • $__________ Rental income (Net after expenses)
  • $__________ Withdrawals from retirement accounts (Other than RMDs)
    • Federal tax withheld $_________
  • $__________ RMDs
    • Federal tax withheld $_________
  • $__________ Total Income (Tax Rate from tables =___%)
  • Total tax withheld $_________
  • Total Income – Taxes withheld equals Estimated Annual Federal Tax Due

*Social Security benefits become taxable if your “combined income” (adjusted gross income (AGI) + nontaxable interest + 50% of benefits) exceeds $25,000 for individuals or $32,000 for married couples filing jointly. Up to 50% of benefits are taxed at these thresholds, increasing to 85% if income exceeds $34,000 (single) or $44,000 (joint).

Due to these limits, many federal retirees end up paying federal taxes on 50% to 85% of their Social Security benefits each year, depending on their AGI.

**Qualified dividends are taxed at lower long-term capital gains rates (0%, 15%, or 20%), while non-qualified (ordinary) dividends are taxed as ordinary income, often resulting in higher tax liability. Qualified dividends require specific holding periods (61 days or more within a 121-day window) and originate from US or qualifying foreign corporations.

***For 2025, federal long-term capital gains tax rates of 0%, 15%, or 20% apply to assets held over one year, based on taxable income. The 0% rate applies to income up to $48,350 (single) or $96,700 (married filing jointly). High earners may also pay an additional 3.8% Net Investment Income Tax (NIIT).

How to Minimize Taxes with a TSP Roth Conversion

2025 Federal Long-Term Capital Gains Tax Brackets

These rates apply to assets held for more than one year.

0% Rate:

Single: Taxable income up to $48,350.

Married Filing Jointly: Taxable income up to $96,700.

Head of Household: Taxable income up to $64,750.

15% Rate:

Single: Income over $48,350 up to $533,400.

Married Filing Jointly: Income over $96,700 up to $600,050.

Head of Household: Income over $64,750 up to $566,700.

20% Rate:

Single: Income over $533,400.

Married Filing Jointly: Income over $600,050.

Head of Household: Income over $566,700.

If your income fluctuates, use a conservative estimate based on what you reasonably expect to earn.

Subtract Your Deductions

Next, subtract either the standard deduction or your itemized deductions from the total household income. Most taxpayers use the standard deduction, which simplifies the process. The result is your estimated taxable income.

The 2025 standard deduction, adjusted by the One Big Beautiful Bill Act (OBBBA), is $31,500 for married couples filing jointly, $23,625 for heads of household, and $15,750 for single individuals and married filing separately. These higher amounts apply to tax returns filed in early 2026.

Apply Your Tax Rate

To avoid getting lost in the IRS tax tables, use a blended tax rate. For many taxpayers, a reasonable estimate falls between 15% and 22% of taxable income, depending on filing status and income level. If you want to be cautious, use the higher end of your expected bracket. Multiply your taxable income by your chosen rate to get your estimated annual tax liability.

For the 2025 tax year (taxes filed in early 2026), the federal income tax rates remain 10%, 12%, 22%, 24%, 32%, 35%, and 37%, with income thresholds adjusted upward for inflation. The 10% bracket applies to taxable income up to $11,925 for single filers and $23,850 for married couples filing jointly.

2025 Federal Income Tax Brackets

  • 10%: Up to $11,925 (Single), Up to $23,850 (Married Joint)
  • 12%: $11,926–$48,475 (Single), $23,851–$96,950 (Married Joint)
  • 22%: $48,476–$103,350 (Single), $96,951–$206,700 (Married Joint)
  • 24%: $103,351–$197,300 (Single), $206,701–$394,600 (Married Joint)
  • 32%: $197,301–$250,525 (Single), $394,601–$501,050 (Married Joint)
  • 35%: $250,526–$626,350 (Single), $501,051–$751,600 (Married Joint)
  • 37%: Over $626,350 (Single), Over $751,600 (Married Joint)

Don’t forget Self-Employment Tax

If you earn self‑employment income, add self‑employment tax to your estimate. A simple rule of thumb is to multiply your net self‑employment income by 15.3%. Add this amount to your estimated income tax to get your total projected tax bill for the year.

Account for Credits and Withholding

If you expect to receive tax credits—such as the child tax credit—or if you have federal tax withholdings from a pension, Social Security, or part‑time employment, subtract those amounts from your projected tax bill. What remains is the amount you need to cover through quarterly payments.

Divide Into Four Payments

Once you have your draft annual estimate, divide it by four. These are your quarterly payments, due in April, June, September, and January. If your income is uneven throughout the year, you can adjust each quarter based on what you actually earned, but the simple four‑payment method works well for most people.

Example

Fred and Janet’s anticipated 2026 income and estimated taxes are as follows:

  • $76,500 Pensions (John’s pension is $48,000, and Janet’s is $28,500)
    • Federal tax withheld $13,770
  • Part-time work $37,000
    • Tax withheld $5,550
  • $43,500 *Social Security Income for both Fred and Janet (85% of the total taxable), their total Social Security income ws $50,025, I entered 85% of that amount.
    • Tax withheld $4,350
  • $0 Self‑employment income (Net)
  • $0 Consulting fees
  • $30,450 Taxable Investment income (Sum of the list below)
    • Interest $16,500
    • **Dividends $5,450 (Qualified dividends – taxed at capital gains rate)
    • ***Capital Gains $18,500 (End-of-year mutual fund capital gain distributions)
  • $0 Rental income (Net after expenses)
  • $0 Withdrawals from retirement accounts that you elected not to withhold taxes from
  • $28,950 RMDs
    • Tax withheld $5,790 (20%)
  • $226,400 Total Income
  • Total tax withheld $29,410
  • Total tax due $42,878 – $29,410 = $13,464 or $2,879/Quarter

To determine the estimated taxes, subtract the standard $31,500 from $226,400 to determine their tax rate. John and Mary have a taxable income of $194,900. Their taxable rate is 22%, or in this case, $42,878.  Their tax deductions equal $29,410. They will owe $13,468 for the year.

However, their $18,500 in capital gains are taxed at 15%, not the 22% we used to calculate the total taxes due for the year.  You can reduce the total taxes due by multiplying $18,500 by .22 which equals $4,070, and then calculating a 15% tax of only $2,775.

Deduct the difference of $1,295 from the annual estimated taxes to lower your quarterly payments.  This can reduce your quarterly payments when you have significant capital gains in any year.

There are many variables to consider, such as tax-exempt income from municipal bonds. Even though it isn’t subject to federal tax, that interest is added back into your AGI to determine your Medicare premiums, so you can’t win for losing in many cases.

Divide this by 4, and each quarterly payment will be $2,879.75. To reduce their quarterly liability or eliminate it altogether, they could increase their federal withholdings. Another option is to increase the Federal withholdings from your RMD. I do this often since our income varies significantly year to year.

Quick Checklist

  • Estimate your annual income
    Add up all income that doesn’t have federal withholding (self‑employment, consulting, investments, rentals, etc.).
  • Subtract your deductions
    Use the standard deduction unless you know you’ll itemize.
  • Apply a blended tax rate
    Multiply your taxable income by 15%–22% to estimate federal income tax.
  • Add self‑employment tax (if applicable)
    Multiply net self‑employment income by 15.3%.
  • Subtract credits and withholding
    Reduce your estimate by any expected tax credits or withholding from pensions, Social Security, or part‑time work.
  • Divide by four
    This gives you your quarterly payment amounts.
  • Prefer a shortcut?
    Set aside 25%–30% of every untaxed dollar you earn and pay in one‑quarter of that amount each quarter.
  • Mark your due dates
    Payments are generally due in April, June, September, and January.

Staying Ahead of Surprises

Going through the process outlined above can be revealing and key you in to areas where you can better allocate withholdings down the road to avoid this annual exercise.  Most years, I change withholdings for one account or another to better manage the tax burden.

You can use the same process for your state taxes, list your withholdings, and perform the calculation using your state’s income tax rate. Pennsylvania doesn’t tax retirement income, only earned income from employment, and capital gains, dividends, and interest held in a taxable account.

Quarterly taxes don’t have to be stressful. By estimating your income, applying a reasonable tax rate, and dividing the result into four manageable payments, you can stay compliant and avoid penalties. A simple system—applied consistently—keeps your tax obligations predictable and under control.

This process is my way of making sense out of a confusing subject, and it doesn’t address some of the fine points. My goal is to develop ways to simplify subjects, work through them in my personal life, and then relay them to my newsletter subscribers and blog followers so they, too, can see if this works for them.  Please let me know if I’m achieving this goal.

Helpful Retirement Planning Tools

Disclaimer: The information provided may not cover all aspects of unique or special circumstances.  Federal regulations, medical procedures, investment information, and benefit details are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance, including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change.

The information contained herein may not be suitable for your situation. This service is not affiliated with OPM or any federal entity. You should consult a financial, medical, or human resource professional where appropriate. Neither the publisher nor the author shall be liable for any loss or other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Last 5 posts by Dennis Damp

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Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, General Information, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION | Comments (0)


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