Pub 505 Worksheet 2-10: Annualized Capital Gain Tax

Updated November 4, 2026. Quick answer: Worksheet 2-10 in Publication 505 (2026) figures the tax on line 12 of the annualized estimated tax worksheet when the annualized income includes qualified dividends or net capital gain. It slices the income into the 0%, 15% and 20% layers (plus 25% and 28% where they apply), then keeps the smaller of that result and the tax from the rate schedules.

When to use Worksheet 2-10

The instruction for line 12 of the annualized sheet says “If the amount on line 1 includes a net capital gain or qualified dividends, use Worksheet 2-10 to figure the amount to enter on line 12.” That sheet is the Worksheet 2-9 page. The note at the top of Worksheet 2-10 tells you how to annualize the entries: “To figure the annualized entries for lines 2, 3, 5, and 6 below, multiply the expected amount for the period by the annualization amount on line 2 of Worksheet 2-9 for the same period.” The method matches the one in the Qualified Dividends and Capital Gain Tax Worksheet from the Form 1040 instructions, with the annualized inputs and 2026 amounts.

Lines 1 to 14: setting up the layers

Line	What it asks
1	“Enter the amount from the appropriate worksheet.” The two sources it lists are line 11 of the Worksheet 2-9 column, or line 3 of Worksheet 2-11 for foreign earned income or housing
2	“Enter your annualized qualified dividends expected for 2026”
3	“Enter your annualized net capital gain expected for 2026”
4	“Add lines 2 and 3”
5	“Enter your annualized 28% rate gain or loss expected for 2026”
6	“Enter your annualized unrecaptured section 1250 gain expected for 2026”
7	“Add lines 5 and 6”
8	“Enter the smaller of line 3 or line 7”
9	“Subtract line 8 from line 4”
10	“Subtract line 9 from line 1. If zero or less, enter -0-”
11	“Enter the smaller of line 1 or $98,900 ($49,450 if Single or Married filing separately or $66,200 if Head of household)”
12	“Enter the smaller of line 10 or line 11”
13a	“Subtract line 4 from line 1. If zero or less, enter -0-”
13b	“Enter the smaller of line 1 or:” the filing-status amounts listed below
13c	“Enter the smaller of line 10 or line 13b”
14	“Enter the larger of line 13a or 13c”

The sheet’s first footnote qualifies lines 2 and 3: “If you expect to deduct investment interest expense, don’t include on this line any qualified dividends or net capital gain that you will elect to treat as investment income.”

The second footnote explains the 28% line: “This includes a section 1202 exclusion from eligible gain on qualified small business stock and gain or loss from the sale or exchange of collectibles.”

The filing-status amounts the sheet prints are below. Single and married filing separately share the line 11 amount, and the two thresholds follow the 2026 rate schedules (the Single and head of household 24% to 32% breaks on Form 1040-ES are $201,775 and $201,750).

Line 13b: “$201,775 if Single or Married filing separately”; “$201,750 if Head of household”; “$403,550 if Married filing jointly or Qualifying surviving spouse”.
Line 19: “$545,500 if Single”; “$306,850 if Married filing separately”; “$613,700 if Married filing jointly or Qualifying surviving spouse”; “$579,600 if Head of household”.

Lines 15 to 25: the 0% and 15% layers

Line	What it asks
15	“Subtract line 12 from line 11. This is the amount taxed at 0%”. Before it, a note: “If line 11 and line 12 are the same, skip line 15 and go to line 16”
16	“Enter the smaller of line 1 or line 9”. Before it: “If lines 1 and 11 are the same, skip lines 16 through 36 and go to line 37”
17	“Enter the amount from line 15. If line 15 is blank, enter -0-”
18	“Subtract line 17 from line 16. If zero or less, enter -0-”
19	Enter the filing-status amount listed above
20	“Enter the smaller of line 1 or line 19”
21	“Add lines 14 and 15”
22	“Subtract line 21 from line 20. If zero or less, enter -0-”
23	“Enter the smaller of line 18 or line 22”
24	“Multiply line 23 by 15% (0.15)”
25	“Add lines 17 and 23. If line 1 equals the sum of lines 21 and 23, skip lines 26 through 36 and go to line 37”

Lines 26 to 36: the 20%, 25% and 28% layers

Line	What it asks
26	“Subtract line 25 from line 16”
27	“Multiply line 26 by 20% (0.20)”
28	“Enter the smaller of line 3 or line 6”
29	“Add lines 4 and 14”
30	“Enter the amount from line 1 above”
31	“Subtract line 30 from line 29. If zero or less, enter -0-”
32	“Subtract line 31 from line 28. If zero or less, enter -0-”
33	“Multiply line 32 by 25% (0.25)”. The note after it reads “If line 5 is zero or blank, skip lines 34 through 36 and go to line 37”
34	“Add lines 14, 15, 23, 26, and 32”
35	“Subtract line 34 from line 1”
36	“Multiply line 35 by 28% (0.28)”

Most estimated-tax filers never reach these lines. When income is within the line 19 amount and there is no 28% or unrecaptured section 1250 gain, the instruction in line 25 skips them.

Lines 37 to 40: compare with the rate schedules

Line	What it asks
37	“Figure the tax on the amount on line 14 from the 2026 Tax Rate Schedules”
38	“Add lines 24, 27, 33, 36, and 37”
39	“Figure the tax on the amount on line 1 from the 2026 Tax Rate Schedules”
40	“Tax on all taxable income (including capital gains and qualified dividends). Enter the smaller of line 38 or line 39”

Line 40 is the answer: “Enter the smaller of line 38 or line 39”. It goes “here and on line 12 of the appropriate column of the 2026 Annualized Estimated Tax Worksheet”.

Example, a Single filer, invented numbers

Illustration, not an IRS example. Invented inputs, with every result computed from them: line 11 of column (a) of Worksheet 2-9 is $70,000 for a Single filer, with qualified dividends of $1,250 and net capital gain of $7,500 expected for the period (the line 2 factor is 4). Line 11 and line 12 differ, so line 15 is completed, and the line 25 note skips lines 26 to 36. The tax on lines 14 and 1 comes from Schedule X on Form 1040-ES (“Use if your 2026 filing status is Single”).

Line	Entry	Amount
1	Taxable income, annualized, Single (invented)	$70,000
2	Annualized qualified dividends: $1,250 for the period times the factor 4 (computed)	$5,000
3	Annualized net capital gain: $7,500 for the period times the factor 4 (computed)	$30,000
4	Lines 2 and 3 added (computed)	$35,000
5 to 7	No 28% rate gain and no unrecaptured section 1250 gain (invented)	$0
8	Smaller of line 3 or line 7 (computed)	$0
9	Line 4 minus line 8 (computed)	$35,000
10	Line 1 minus line 9 (computed)	$35,000
11	Smaller of line 1 or $49,450 (computed)	$49,450
12	Smaller of line 10 or line 11 (computed)	$35,000
13a	Line 1 minus line 4 (computed)	$35,000
13b	Smaller of line 1 or $201,775 (computed)	$70,000
13c	Smaller of line 10 or line 13b (computed)	$35,000
14	Larger of line 13a or line 13c (computed)	$35,000
15	Line 11 minus line 12 (computed): the amount taxed at 0%	$14,450
16	Smaller of line 1 or line 9 (computed)	$35,000
17	Amount from line 15	$14,450
18	Line 16 minus line 17 (computed)	$20,550
19	Single amount	$545,500
20	Smaller of line 1 or line 19 (computed)	$70,000
21	Lines 14 and 15 added (computed)	$49,450
22	Line 20 minus line 21 (computed)	$20,550
23	Smaller of line 18 or line 22 (computed)	$20,550
24	Line 23 times 15% (computed)	$3,082.50
25	Lines 17 and 23 added (computed); line 1 equals lines 21 and 23 added, so lines 26 to 36 are skipped	$35,000
37	Tax on line 14 from Schedule X (computed): 1,240.00 plus 12% of the amount over 12,400, in dollars	$3,952
38	Lines 24 and 37 added (computed; lines 27, 33 and 36 are blank)	$7,034.50
39	Tax on line 1 from Schedule X (computed): 5,800.00 plus 22% of the amount over 50,400, in dollars	$10,112
40	Smaller of line 38 or line 39 (computed)	$7,034.50

The layered method taxes $14,450 at the 0% rate, $20,550 at 15% and the rest at the ordinary rates, giving $7,034.50 (computed). Taxing the whole $70,000 at the ordinary rates would give $10,112 (computed), so line 40 keeps the smaller figure, $7,034.50 (computed).

Edition

This page reads Publication 505 (2026), Tax Withholding and Estimated Tax, the file irs.gov served on 2026-11-04 (sha256 in the kit data). Line numbers belong to that edition, so check the label printed on the worksheet in your own copy before you follow a line reference. The rate schedule rows used in the example are from Form 1040-ES (2026).

Common mistakes

Entering the expected amount for the period without multiplying by the line 2 factor of Worksheet 2-9. Lines 2, 3, 5 and 6 are annualized entries.
Dropping the comparison. Line 40 is the smaller of line 38 and line 39, not line 38 on its own.
Reading the thresholds from the 2025 Form 1040 instructions. The amounts on this sheet are the 2026 ones for each filing status.
Counting a skipped line as an entry. When the notes tell you to skip lines, those lines stay blank and count as zero in line 38.

Find the right next step for your situation

About how much do you have invested? Pick the range that fits; your next step appears immediately below.

About how much do you have invested? Under $100,000 $100,000 to under $250,000 $250,000 to under $1 million $1 million or more

Sources

Publication 505 (2026), Tax Withholding and Estimated Tax: https://www.irs.gov/pub/irs-pdf/p505.pdf
Form 1040-ES (2026), Estimated Tax for Individuals: https://www.irs.gov/pub/irs-pdf/f1040es.pdf

Read from the IRS documents linked above on November 4, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.

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