Pub 17 Study Notes, Chapter 4: Tax Withholding and Estimated Tax (Tax Years 2023 to 2026)

Chapter 4 of IRS Publication 17 covers pay-as-you-go tax: how income tax reaches the IRS during the year through withholding and estimated payments, and what happens when too little arrives. It touches Forms W-4, W-4P, W-4S, W-4V, 1040-ES and 2210, and Form 1040 lines 25 to 26, 36 and 38. It runs on printed pages 37 to 45 of the 2025 edition; the 2023 and 2024 editions match. For a plain-language companion, see our guide to estimated taxes. It sits in our Pub 17 study notes between chapter 3 on dependents and chapter 5 on wages. These are unofficial study notes in our own words; the IRS publication controls.

Key terms

How withholding works

Page numbers are from the 2025 edition.

Form W-4 rules (all years unless noted)

1. Always complete Step 1 and sign. Steps 2 to 4 are for two jobs or a working spouse (2), dependents and credits (3), and other income, deductions and extra withholding (4).
2. The employer applies a new form by the first payroll period ending 30 or more days after you hand it in. With no form, it withholds at the single rate.
3. If a change cuts the withholding you may claim, give a new form within 10 days. A 2026 event affecting 2027 needs one by December 1, 2026.
4. Exempt status needs both: no tax liability last year and none expected this year. Pub 17 says write "Exempt" under Step 4(c); Form W-4 (2026) uses a certification box and asks for only Steps 1(a), 1(b) and the signature. It stops income tax withholding only, not social security or Medicare tax, and expires; renew by February 15 (the 2026 form says February 16, 2027).
5. A claim with no reasonable basis risks a $500 penalty; willful false information risks a fine up to $1,000, one year in prison, or both.

The 2025 edition adds pointers to a $6,000 ($12,000 joint) deduction at age 65 or older and to the tips and overtime deductions (see chapter 5).

Backup withholding

The payer withholds 24% when:

1. You do not give your TIN the required way.
2. The IRS tells the payer your TIN is wrong.
3. You must certify you are not subject to backup withholding and do not.
4. The IRS orders it for underreported interest or dividends, only after four notices to you.

False information to avoid it carries a $500 civil penalty, or a fine up to $1,000, a year in prison, or both on conviction. For 2026 (planning figures), Pub 505 says winnings of $2,000 or more from bingo, slots and keno are also caught, and so are Form 1099-MISC payments once one payer has paid you $2,000 or more (Pub 505 lists two other triggers as well).

Estimated tax

Do you have to pay?

1. No payment is needed if you had zero tax liability last year, were a U.S. citizen or resident all year, and last year's return covered 12 months.
2. Otherwise you must pay when you expect to owe $1,000 or more after withholding and refundable credits, and withholding plus refundable credits will be less than the required annual payment.
3. Required annual payment: the smaller of 90% of this year's tax or 100% of last year's. Use 110% if last year's AGI was more than $150,000 ($75,000 if your status this year is married filing separately).
4. Farmers and fishers with two-thirds of gross income from farming or fishing use 66 2/3% in place of 90%, and the 110% rule does not apply to them.

Spouses may pay jointly even if they live apart, but not if legally separated by decree, on different tax years, or if either is a nonresident alien (unless treated as a resident). Separate last year, joint now: add both spouses' tax. Joint last year, separate now: your share is the joint tax times your separate-return tax divided by both separate-return taxes combined.

Due dates

If your first income arrives in a later period, start with that period's date; income first arriving after August 31 means one January payment. The regular method makes each installment one quarter of the required annual payment. If your estimate changes, spread the unpaid balance over the remaining dates.

Credit for tax paid

Withholding and estimated payments are refundable credits, so file even if you owe nothing.

• Form W-2 box 2: line 25a. Backup withholding and Form 1099-R box 4: line 25b. Form W-2G: line 25c.
• Estimated payments and prior-year overpayment applied: line 26. An overpayment applied to next year goes on line 36 and cannot be refunded or used elsewhere until you file the next return.
• Separate returns: claim only your own withholding (community property states may differ). Split joint estimated payments by agreement, or in proportion to each spouse's separate tax.

Underpayment penalty

You generally owe no penalty if any one applies (the 2023, 2024 and 2025 editions list the same five):

1. You paid at least last year's tax (110% if last year's AGI was over $150,000, or $75,000 if you file separately this year) and made every installment on time.
2. The balance due is no more than 10% of your total tax and every installment was on time.
3. Total tax minus withholding and refundable credits is under $1,000.
4. You had no tax liability last year and last year had 12 months.
5. You had no withholding, and this year's tax less household employment taxes is under $1,000.

The penalty runs like interest on each short installment for each day it is unpaid, at a rate reset every quarter. The IRS describes the underpayment rate as the federal short-term rate plus 3 percentage points, so we quote no figure. The IRS usually bills the penalty; attach Form 2210 (2210-F for farmers and fishers) only to reduce or waive it. Waiver grounds include casualty, disaster or unusual circumstances, and retirement after age 62 or disability (with reasonable cause). Schedule AI must be used for all due dates or none.

By tax year: 2023, 2024, 2025 and 2026

Dates are for the tax year named. Each Pub 17 edition prints the following year's dates, so the 2023 dates come from Form 1040-ES (2023) and Pub 17 (2022), and all four years match the Forms 1040-ES for those years.

2026 column: planning figures from Pub 17 (2025), Pub 505 (2026), Form 1040-ES (2026), Form W-4 (2026) and the 2025 law; Pub 17 (2026) is not yet published (expected about mid-January to February 2027). Safe-harbor percentages, the $1,000 threshold, the AGI tests, the 24% rates, the $5,000 gambling threshold and the $500 penalties were identical in all four years.

What changed:

• 2023 to 2025: no rule changes except new 2025 pointers to the age-65, tips and overtime deductions; the W-2 furnishing date moved to February 2, 2026 (a weekend shift).
• 2026: Form W-4 (2026) Step 4(b) instructions name qualified tips, overtime, car loan interest and seniors, with student loan interest and IRAs. Step 3 shows $2,200 per child under 17 and $500 per other dependent (income up to $200,000, or $400,000 joint). The backup-withholding triggers above rose to $2,000.

Worked examples

Example 1 (tax year 2025): choosing the safe harbor

Nina's 2024 tax was $22,000 and AGI $120,000. For 2025 she expects tax of $30,000 and withholding of $14,000, so she expects to owe $16,000, above $1,000. 90% of $30,000 is $27,000; 100% of $22,000 is $22,000. The required annual payment is $22,000. She needs $22,000 - $14,000 = $8,000 more, or $2,000 on each date if withholding is even. If actual tax is $30,000 she owes $8,000 at filing with no estimated-tax penalty.

Example 2 (tax year 2025): the 110% rule

Marcus had 2024 AGI of $180,000 and 2024 tax of $50,000, and expects 2025 tax of $70,000. 90% of $70,000 is $63,000. 110% of $50,000 is $55,000. The required annual payment is $55,000; paying only $50,000 would fall short.

Example 3 (2026 planning): skipping January

Elena pays $4,000 on April 15, June 15 and September 15, 2026, then files on Friday, January 29, 2027, paying the whole balance. Her fourth installment counts as on time, so no January 15 payment is due.

Common mistakes and exam traps

• Using 110% at exactly $150,000. The test is "more than."
• Subtracting estimated payments in the $1,000 test. Only withholding and refundable credits come off.
• Claiming "Exempt" from this year's expectation alone, or thinking it stops social security and Medicare withholding.
• Applying 24% gambling withholding to bingo, keno or slots; a missing Social Security number can still trigger backup withholding.
• Mailing estimated payments to the Form 1040 address instead of the Form 1040-ES address.

Forms and lines map

The 2026 draft Form 1040 keeps these line numbers; drafts can change.

Check yourself

1. (2025) What is the required annual payment?

Answer: The smaller of 90% of 2025 tax or 100% of 2024 tax (110% if 2024 AGI was over $150,000).

2. (2023) Your 2022 AGI was exactly $150,000. Which percentage of 2022 tax applies?

Answer: 100%, because 110% needs AGI of more than $150,000.

3. (2025) 2024 tax $40,000, 2024 AGI $210,000, expected 2025 tax $60,000. Required annual payment?

Answer: $44,000. 90% of $60,000 is $54,000; 110% of $40,000 is $44,000; take the smaller.

4. (2026 planning) First self-employment income arrives in July 2026. First installment date?

Answer: September 15, 2026, then January 15, 2027, since June 1 to August 31 income starts at the third date.

5. (2025) A $10 wager pays $3,000. Is tax withheld?

Answer: No. It is 300 times the bet, but winnings must also exceed $5,000.

6. (2025) A student owed $300 of income tax last year. Can she claim "Exempt"?

Answer: No. She needed no liability last year and none expected this year.

7. (2024) A life change reduces the withholding you may claim. How soon must you give a new Form W-4?

Answer: Within 10 days.

8. (2025) Spouses made joint estimated payments, now file separately and cannot agree on a split. What happens?

Answer: Payments divide in proportion to each spouse's own tax on the separate returns.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.