Annualized Estimated Tax Worksheet: Periods, Schedule AI, and Recapture

The annualized estimated tax worksheet, formally Schedule AI of IRS Form 2210, lets you size each quarterly estimated tax payment to the income you had actually earned by that point in the year instead of paying four equal installments. If your earnings cluster in certain months, the worksheet can shrink or eliminate the underpayment penalty that a flat 25%-per-quarter schedule would trigger on your lean quarters.

When the Worksheet Is Worth Using

The default safe harbor splits your required annual payment into four equal installments of 25%.¹ That works if your income arrives evenly. It punishes you if it doesn’t.

Section 6654(d)(2) of the Internal Revenue Code lets you substitute a smaller “annualized income installment” in any quarter where your year-to-date earnings justify it.¹ The idea is simple. The IRS asks what your annual tax would be if you kept earning at the pace you’d hit by each cut-off date, and it sizes your required payment against that projection rather than your full-year total.

Typical users include seasonal business owners whose revenue comes in during summer, freelancers whose projects finish unevenly, investors who sell appreciated assets late in the year, and retirees who take a single large distribution. The common thread is that equal quarterly payments would force you to pay tax on money you haven’t earned yet.

The Four Periods and Their Multipliers

Schedule AI divides the tax year into four cumulative periods, each starting on January 1 and running through a different cut-off date. The periods are unequal in length, which is where most people slip up.²

Period (a): January 1 through March 31 (3 months), multiplier 4
Period (b): January 1 through May 31 (5 months), multiplier 2.4
Period (c): January 1 through August 31 (8 months), multiplier 1.5
Period (d): January 1 through December 31 (12 months), multiplier 1

Each column asks for cumulative figures from January 1, not just what happened inside that quarter. The multiplier then projects your annual income as if the rest of the year continued at the same pace. Earn $30,000 through March 31, and the worksheet projects $120,000 for the full year. It applies the year’s tax rates to that projection, takes the applicable percentage for the installment period, subtracts what you’ve already paid, and gives you the minimum installment needed to keep you penalty-free for that quarter.²

Walking Through Schedule AI

The worksheet runs about 27 lines across four columns, one per period. The flow is the same in each column.

Line 1 asks for your adjusted gross income for the period. That’s total income minus above-the-line adjustments like the deductible portion of self-employment tax. Cash-method filers (which covers most individuals) include income actually received and expenses actually paid inside that window.³

Line 2 applies the annualization multiplier to project full-year AGI. Lines 3 through 9 handle deductions. Itemizers multiply their itemized deductions by the annualization amount. If you take the standard deduction, you enter the full annual figure (for 2026, $16,100 for single filers, $32,200 for married filing jointly, and $24,150 for head of household).⁴ Line 9 is where the qualified business income deduction goes if it applies.

Lines 10 through 14 compute projected taxable income and apply the year’s tax rates. Line 16 adds other taxes, like the alternative minimum tax or the tax on lump-sum distributions, if they apply to you. Line 18 subtracts credits you’re entitled to based on events during the period. The remaining lines compare the annualized installment to the regular installment and use the smaller number as your required payment for each quarter.³

Before you start, pull together your bank statements, 1099s, expense records, and any K-1 income from partnerships or S corporations, and sort each item into the correct cumulative window. A single 1099 dropped into the wrong period distorts the projection in that column and can leave your installment too low to avoid a penalty.

The Recapture Effect on Later Quarters

This is the part of the annualized method that surprises people. When a smaller early-quarter payment reflects low year-to-date income, the amount you didn’t pay gets added to what’s required in the next quarter. Section 6654 calls this recapture, and it means later installments run larger than you’d otherwise expect.¹

Schedule AI handles the mechanics for you in its lower lines, comparing the annualized installment against the regular installment plus any prior reductions and picking the smaller figure.³ The practical takeaway matters more than the math. If you had a slow first quarter and paid very little, then a strong summer, your September installment can be substantially larger than the April one. The annualized method doesn’t reduce the total tax you owe. It shifts when you owe it.

All Four Quarters or None

If you use Schedule AI for one payment date, you must use it for all four.³ You can’t pick the annualized method for the quarters where it helps and revert to the standard method for the rest.

Attaching Schedule AI to Your Return

When you file your annual return, attach Form 2210 (Parts I, II, and III) along with Schedule AI, and check Box C in Part II to signal that you’re using the annualized income installment method. The amounts from Schedule AI line 27, columns (a) through (d), flow into Form 2210, Part III, line 10.³

Skipping the attachment is a common and expensive mistake. Without Schedule AI on file, the IRS system assumes you owed equal installments and generates an automatic penalty notice for any quarter where you paid less than 25% of your annual liability.

One Boundary: Farmers and Fishermen

If at least two-thirds of your gross income for the current or prior year comes from farming or fishing, you don’t need the annualized method. You can make a single estimated payment by January 15 following the tax year, or skip estimated payments entirely by filing and paying in full by March 1.⁵ The single-payment option already solves the timing problem the annualized worksheet is built to fix. If farming or fishing is less than two-thirds of your income and your other earnings are uneven, Schedule AI is still available.

1
Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual to Pay Estimated Income Tax
2
Internal Revenue Service. Form 2210 – Underpayment of Estimated Tax by Individuals, Estates, and Trusts
3
Internal Revenue Service. Instructions for Form 2210 (2025)
4
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
5
Internal Revenue Service. Farming and Fishing Income