How to Estimate Your Tax Liability for the Year

Whether you are filing an extension or planning your quarterly estimated payments, one number matters more than any other: Your total tax liability.

Many taxpayers confuse "total tax liability" with the amount due on their tax returns. They are not the same. Your liability is the total tax generated by your income for the entire year. The amount due is simply what is left over after subtracting what you have already paid or had withheld.

Getting this number right—or at least "right enough"—is the key to avoiding underpayment penalties.

Here is a step-by-step guide to estimating your tax bill.

Note that this guide is intended for informational and educational purposes only. We do not take responsibility for any errors or mistakes caused by your use of the information contained on this article or website.

Step 1: Annualize Your Income

Grab your most recent pay stubs, bank statements, and last year’s tax return. You need to project your total income for the year.

• W-2 Income: Look at the "YTD" (Year-to-Date) Gross Pay on your pay stub and project it for the remaining paycycles remaining in the year.
• Self-employed/Contractor/Freelance Income: Tally all invoices paid to you during the year and estimate any remaining payments. Subtract estimated deductible expenses for the year.
• Investments: Estimate interest, dividends, and capital gains (check your brokerage statements for realized gains) and any expected income and losses for the remainder of the year.
• Keep in mind that net capital losses are only deductible in excess of net capital gains of $3,000 per tax year. Do not lower your annualized income for estimated tax purposes by more than this loss limit.
• Taxable Retirement Distributions: Include in your income the expected amount of your total distributions from pre-tax retirement accounts (e.g., traditional 401(k)s or IRAs), pensions, Social Security, etc.
• K-1 Pass-Throughs: If you own a business or partnership interest, ask the managing partner for a projected K-1 or use last year’s figure as a placeholder if operations were stable.
• Other Income: Estimate the expected taxable income from any other sources of income you may have.

Step 2: Subtract Your Deductions

You don't pay tax on every dollar you earn. Reduce your income by the standard deduction or your estimated itemized deductions.

2025 Federal Standard Deduction (for returns filed in 2026):

• Single: $15,750
• Married Filing Jointly: $31,500
• Head of Household: $23,625

2025 California Standard Deduction (for returns filed in 2026):

• Single or Married Filing Separately: $5,706
• Married Filing Jointly, Head of Household, or Qualifying Surviving Spouse: $11,412

If you typically itemize (mortgage interest, SALT, charity), use your total from last year’s return unless you know you had significant changes. Keep in mind any tax limitations on deductions.

Step 3: Calculate the Tax (Marginal Tax Brackets)

While some may say you can use your "effective tax rate" (average rate) from last year's tax return, it can be dangerous if your income has increased. Every additional dollar you earn is taxed at your highest "marginal" rate, not your average rate.

For a safer estimate, identify which bracket your last dollar falls into and apply that rate to your additional income.

To estimate your total tax liability, calculate the difference between your estimated current year taxable income and your prior year's taxable income and then multiple it by your marginal tax bracket.

For example, assume your federal taxable income last year was $300,000 with a total tax liabiltiy of $75,000, and you project your income for the current tax year to be $320,000. To determine how much more in taxes you will pay in the current year than the prior year, you multiple your $20,000 increase in taxable income ($320,000 - $300,000) by your marginal tax bracket, which if you are filing as "Single", it would be 35% for federal taxes. That comes out to be $7,000. With that, your estimated current year total tax liability would be $82,000.

2025 Federal Marginal Tax Brackets

• 10% Taxable income up to $11,925 (Single) / $23,850 (Married)
• 12%: Taxable income up to $48,475 (Single) / $96,950 (Married)
• 22% Taxable income up to $103,350 (Single) / $206,700 (Married)
• 24%: Taxable income up to $197,300 (Single) / $394,600 (Married)
• 32%: Taxable income up to $250,525 (Single) / $501,050 (Married)
• 35%: Taxable income up to $626,350 (Single) / $751,600 (Married)
• 37%: Taxable income above $626,350 or more (Single) / $751,600 or more(Married)

For other filing statues, please look them up online.

2025 California Marginal Tax Brackets

California tax brackets are progressive, ranging from 1% to 12.3%, plus a 1% surcharge for income over $1 million.

• 1.0% Taxable income up to $11,079 (Single or Married Separately) / $22,158 (Married Jointly or QSS) / $22,173 (Head of Household)
• 2.0%: Taxable income up to $26,264 (Single or Married Separately) / $52,528 (Married Jointly or QSS) / $52,530 (Head of Household)
• 4.0%: Taxable income up to $41,452 (Single or Married Separately) / $82,904 (Married Jointly or QSS) / $67,716 (Head of Household)
• 6.0%: Taxable income up to $57,542 (Single or Married Separately) / $115,084 (Married Jointly or QSS) / $83,805 (Head of Household)
• 8.0%: Taxable income up to $72,724 (Single or Married Separately) / $145,448 (Married Jointly or QSS) / $98,990 (Head of Household)
• 9.3%: Taxable income up to $371,479 (Single or Married Separately) / $742,958 (Married Jointly or QSS) / $505,208 (Head of Household)
• 10.3%: Taxable income up to $445,771 (Single or Married Separately) / $891,542 (Married Jointly or QSS) / $606,251 (Head of Household)
• 11.3%: Taxable income up to $742,953 (Single or Married Separately) / $1,485,906 (Married Jointly or QSS) / $1,010,417 (Head of Household)
• 12.3%: Taxable income above $742,953 or more (Single or Married Separately) / $1,485,906 or more (Married Jointly or QSS) / $1,010,417 (Head of Household)

Step 4: Remaining Balance Due

Estimated Liability − Total Payments Made = Remaining Balance Due

If the number is positive, that is the remaining amount estimated to be due with your tax return. If it is negative, you are estimated to be due a refund.

If you are going to file an extension and file your tax return after the regular filing deadline, that remaining balance due is the amount you should submit as your extension payment. We also recommend paying extra in case you underestimate your actual tax liability. If you are estimated to be owed a refund, then you do not have to make an extension payment.

Quarterly Estimated Tax Payments

You can skip this part if you are reading this article for purposes other than determining the amount of quarterly estimated tax payments you should be paying, such as for determing your extension payment or seeing how much you might owe with your tax returns in general.

For determining how much you should be paying throughout the year through quarterly estimated tax payments (to avoid underpayment interest charges), you can use the lesser of two different calculations. As long as you pay enough to meet one of these two tests, you will generally not be penalized, even if you still owe money before the regular filing deadline (April 15 for individual/personal income taxes).

• Regular Calculation: Pay 90% of yourcurrent year's tax (this is harder to determine because you have to guess this year's income correctly).
• "Safe Harbor": Pay 100% (or 110%, see note below) of your prior year's total tax (safer because you know this exact number, assuming you filed a tax return).

Exception: If your Adjusted Gross Income (AGI) last year was over $150,000 ($75k if married filing separately), you must use 110% of the prior year's tax instead of just 100% for the "safe harbor" rule.

For extension payments, the safe harbor rule is not applicable. You will want to pay what you think you will owe for the remaining balance on your tax liability for the full tax year.

Important California Warning: California generally follows the same federal safe harbor rules, with one major exception: If your current year AGI is ≥ $1,000,000, you cannot use the prior year "safe harbor" rule. You must pay 90% of the current year's tax liability (the "Regular Calculation" from above).