Guides

No Tax Liability Last Year: Estimated Tax Exception

Checked October 17, 2026 · Educational summary

General information, not tax, legal or financial advice. We are not the IRS. Check IRS.gov or a qualified tax professional. Sources read on October 17, 2026. Dates and amounts after 2026 are expected and may change. Examples use made-up numbers. This page contains no affiliate links.

the IRS FAQ says you had no tax liability for the prior year if your total tax was zero: the "total tax" line on Form 1040 or 1040-SR was zero, or your gross income was below the threshold required to file a return. The IRS FAQ describes this as an exception to the requirement to make estimated payments, and says two more requirements must be met: your prior tax year was a taxable year of 12 months, and you were a citizen or resident of the United States throughout the prior tax year.

How it fits the general rule

The IRS says you generally must make estimated payments if you expect to owe at least $1,000 for the current year after withholding and refundable credits, and you expect withholding and refundable credits to be less than the smaller of 90% of the current year's tax or 100% of the prior year's tax (110% if the prior year's adjusted gross income was more than $150,000, or $75,000 if married filing separately). The "no tax liability" exception is one of the exceptions to the penalty. See the safe harbor percentages and whether you need to pay quarterly.

Two ways to have had zero total tax

1. The total tax line on your 2025 Form 1040 or 1040-SR was zero.
2. Your gross income was below the amount that required you to file (see Who Must File in Publication 501).

Example (made-up numbers)

A student had $4,000 of income in 2025 and was not required to file (the threshold depends on filing status and age). In 2026 she starts freelancing and earns much more. If her 2025 year had 12 months and she was a U.S. citizen throughout 2025, the IRS FAQ indicates the exception may apply to the estimated tax penalty for 2026, even though she may still owe tax when she files. Confirm with the instructions.

What the exception does not do

It does not remove tax you owe: it concerns the penalty for underpaying estimated tax. Interest and the balance due remain. The penalty calculation is on Form 2210; see the underpayment penalty guide.

FAQ

I moved to the U.S. in 2026 and had no 2025 U.S. return. Does it apply?

The FAQ requires you to be a citizen or resident throughout the prior year; ask a professional.

Is the 12-month rule a problem for a short first year?

If the prior year was shorter than 12 months, the exception as described does not apply.

What we could not verify