Quick Answer
Yes, you can use last year's tax to calculate estimates using the safe harbor rule. If you pay 100% of last year's tax liability (110% if your AGI exceeded $150,000), you won't face underpayment penalties even if you owe more this year.
Best Answer
James Okafor, Self-Employment Tax Specialist
Best for first-year freelancers who want a simple, penalty-free approach
How the safe harbor rule works
Yes, you can absolutely use last year's tax to calculate this year's estimated payments, and it's often the smartest approach for new freelancers. The IRS safe harbor rule protects you from underpayment penalties if you pay at least 100% of last year's total tax liability (110% if your adjusted gross income exceeded $150,000).
Here's why this matters: Let's say your 2025 total tax was $8,000. For 2026, you can simply divide that by 4 and pay $2,000 per quarter. Even if your freelance income doubles and you actually owe $15,000 in 2026, you won't face any underpayment penalties because you met the safe harbor threshold.
Example: $60,000 freelancer using safe harbor
Sarah earned $45,000 as a W-2 employee in 2025 and paid $4,500 in total federal tax. In 2026, she starts freelancing and expects to earn $60,000. Here's her safe harbor calculation:
Even though Sarah's actual 2026 tax liability might be $7,200 (due to higher income and self-employment tax), she avoids penalties by paying the $4,500 safe harbor amount in quarterly installments.
When safe harbor makes sense
Perfect for:
Less ideal when:
The 110% rule for higher earners
If your 2025 adjusted gross income exceeded $150,000, you must pay 110% of last year's tax to qualify for safe harbor protection. Using our earlier example, if Sarah's AGI was $160,000 in 2025 with $18,000 in tax liability:
Key factors that affect this strategy
What you should do
1. Find your 2025 total tax liability on line 24 of Form 1040
2. Divide by 4 for quarterly amounts (multiply by 110% first if your AGI exceeded $150,000)
3. Use our quarterly estimator to compare this safe harbor approach with current year calculations
4. Choose the method that gives you the most predictable cash flow
Key takeaway: Using last year's tax for estimates eliminates guesswork and penalty risk, making it ideal for new freelancers who value simplicity over optimization.
*Sources: [IRS Publication 505](https://www.irs.gov/pub/irs-pdf/p505.pdf), IRC Section 6654*
Key Takeaway: Safe harbor rule lets you pay 100% of last year's tax (110% if AGI > $150,000) to avoid penalties, even if you owe more this year.
Safe harbor requirements based on last year's income level
| 2025 AGI | Safe Harbor Percentage | Example: Last Year Tax $10,000 | Quarterly Payment |
|---|---|---|---|
| Under $150,000 | 100% | $10,000 | $2,500 |
| $150,000 or more | 110% | $11,000 | $2,750 |
More Perspectives
James Okafor, Self-Employment Tax Specialist
Best for W-2 employees with freelance income who want to avoid overwithholding
Why side hustlers should be more careful with safe harbor
As a side hustler, using last year's tax might not be optimal because your W-2 withholding already covers much of your tax liability. If you blindly use the safe harbor rule, you might significantly overpay.
Let's say you're a teacher earning $55,000 with $4,000 withheld, and you made $15,000 freelancing in 2025 with a total tax liability of $8,500. If you use safe harbor for 2026 ($8,500 ÷ 4 = $2,125 quarterly), but your freelance income drops to $8,000, you'd overpay by roughly $1,500.
Better approach for side hustlers
Instead of pure safe harbor, consider the "current year safe harbor" method:
1. Calculate your expected total 2026 tax
2. Subtract your W-2 withholding for the year
3. The remainder is what you need to pay quarterly
Example: $55,000 W-2 salary + $12,000 freelance income:
When to use last year's number anyway
Use safe harbor if:
Key takeaway: Side hustlers benefit more from calculating current year estimates rather than using safe harbor, unless freelance income is highly unpredictable.
Key Takeaway: Side hustlers should calculate current year needs rather than use safe harbor to avoid significant overpayment due to existing W-2 withholding.
James Okafor, Self-Employment Tax Specialist
Best for established freelancers who want to optimize cash flow
Strategic considerations for full-time freelancers
As a full-time freelancer, you have more control over your income timing and business expenses, which means using last year's tax as a baseline might not optimize your cash flow.
The safe harbor rule is excellent for avoiding penalties, but it doesn't account for:
Hybrid approach: Safe harbor + adjustments
Many experienced freelancers use a modified safe harbor approach:
1. Start with last year's tax liability as the baseline
2. Adjust up or down by 10-20% based on expected income changes
3. Make larger payments in high-earning quarters, smaller in low-earning quarters
Example: 2025 tax liability of $15,000, expecting 15% income growth:
When to abandon last year's numbers
Recalculate from scratch if:
Key takeaway: Full-time freelancers can use last year's tax as a starting point but should adjust for known income changes and seasonal cash flow patterns.
Key Takeaway: Experienced freelancers benefit from using last year's tax as a baseline while adjusting 10-20% for expected income changes and seasonal patterns.
Sources
- IRS Publication 505 — Tax Withholding and Estimated Tax
Related Questions
Reviewed by James Okafor, Self-Employment Tax Specialist on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.