How Estimated Tax Payments Work and Who Needs to Make Them
What Estimated Tax Payments Are and Why You Might Owe Them
Estimated tax payments are quarterly payments you send to the IRS when you don't have taxes withheld from a paycheck. If you're self-employed, a freelancer, a gig worker, or you have income from investments, rental property, or a business, the IRS expects you to pay taxes four times a year instead of once at tax time. The IRS calls these payments "estimated" because you calculate what you think you'll owe based on your income so far that year.
The reason estimated payments exist is simple: the IRS doesn't want to wait until April to collect taxes. When you work a regular job, your employer withholds taxes from each paycheck and sends them to the IRS throughout the year. If you're self-employed or have other income sources, you're responsible for sending that money yourself on a schedule.
If you don't make estimated payments and you owe more than $1,000 when you file your tax return, you'll owe a penalty on top of the taxes themselves. The penalty is calculated based on how late the payment was and how much you underpaid. You can reduce or avoid the penalty if you paid at least 90% of what you owe for the current year, or 100% of what you owed the previous year (whichever is smaller).
Key Takeaways
- Estimated tax payments are due four times a year if you have self-employment income, investment income, or other income not subject to withholding.
- The four payment deadlines are mid-April, mid-June, mid-September, and mid-January of the following year, though the exact dates shift slightly each year.
- You calculate your estimated payment by figuring out your expected income for the year, subtracting deductions, and dividing the tax owed by four.
- You can pay online through IRS Direct Pay, by mail with Form 1040-ES, or through an electronic payment system like EFTPS.
- If you underpay, you'll owe interest and a penalty when you file your return, but you can reduce the penalty by paying at least 90% of your current year's tax or 100% of last year's tax.
The Four Payment Deadlines and How They're Spaced
The IRS divides the tax year into four quarters, and each quarter has its own payment deadline. The first payment covers January through March and is due in mid-April. The second covers April through May and is due in mid-June. The third covers June through August and is due in mid-September. The fourth covers September through December and is due in mid-January of the following year.
The exact dates shift slightly from year to year because the IRS aligns them with weekends and holidays. For example, if the deadline falls on a Saturday, you have until Monday. If it falls on a federal holiday, you have until the next business day. The IRS publishes the exact dates each year on its website and on Form 1040-ES, which you can download for free.
If you miss a deadline, you can still make the payment, but you'll owe interest from the original due date. The interest rate changes quarterly and is set by the IRS. You'll also owe an underpayment penalty unless you meet one of the safe harbor rules mentioned above.
How to Calculate What You Owe Each Quarter
To calculate your estimated payment, start by projecting your total income for the year. This includes self-employment income, rental income, investment income, and any other income that won't have taxes withheld. Then subtract the deductions you expect to claim—business expenses if you're self-employed, mortgage interest if you own rental property, and so on.
Once you have your projected taxable income, use the tax tables in Form 1040-ES or an online tax calculator to figure out your total federal tax for the year. Then divide that by four to get your quarterly payment. You can also account for any tax credits you expect to claim, like the Earned Income Tax Credit, by reducing your payment amount.
If your income is uneven throughout the year—for example, if you earn most of your money in the summer—you don't have to pay the same amount each quarter. You can pay more in the quarters when you earn more and less in the quarters when you earn less. This is called annualized installment payments, and it can help you avoid overpaying early in the year. Form 2210 is used to calculate annualized payments if you want to use this method.
Many people recalculate their estimated payment each quarter based on their actual income so far. This is a smart approach because it lets you adjust if your income is higher or lower than you expected.
Three Ways to Send Your Payment to the IRS
IRS Direct Pay is the fastest and most straightforward method. You go to the IRS website, enter your payment amount and the quarter you're paying for, and authorize a transfer from your bank account. The payment is free, and you get a confirmation number immediately. You can schedule a payment in advance if you want to pay on a specific date.
EFTPS (Electronic Federal Tax Payment System) is another online option run by the U.S. Department of the Treasury. You enroll once, and then you can make payments whenever you need to. EFTPS is also free and works with most banks. Some people prefer it because it integrates with their accounting software.
By mail is the slowest option but still works. You fill out Form 1040-ES, include a check or money order, and mail it to the IRS address listed on the form. The address depends on your state. The IRS considers your payment made on the date it's postmarked, so mail it early enough to arrive before the deadline. If you mail a payment, keep a copy of the form and your cancelled check or money order receipt as proof.
You can also pay by credit card or debit card through a third-party processor, but the processor charges a fee—usually 1.5% to 2% of your payment. This is only worth it if you're earning credit card rewards that exceed the fee.
What Happens If You Underpay or Miss a Deadline
If you don't pay enough in estimated taxes throughout the year, you'll owe the difference when you file your return. You'll also owe interest on the unpaid amount, calculated from the original due date of each missed or short payment. The interest rate is set by the IRS and changes quarterly—it's currently between 8% and 9% per year, but check the IRS website for the current rate.
On top of interest, you'll owe an underpayment penalty. The penalty is calculated based on how much you underpaid and how long the money was late. However, you can avoid the penalty if you meet one of two safe harbor rules: you paid at least 90% of your 2024 tax liability through estimated payments and withholding, or you paid 100% of your 2023 tax liability (or 110% if your 2023 adjusted gross income was over $150,000).
If you realize partway through the year that you're going to underpay, you can increase your remaining estimated payments to catch up. For example, if you underpaid in the first quarter, you can pay extra in the second, third, and fourth quarters. This won't eliminate the penalty for the first quarter, but it will reduce the total penalty you owe.
When You Don't Need to Make Estimated Payments
If you have a regular job and your employer withholds taxes from your paycheck, you generally don't need to make estimated payments for that income. However, if you have other income on the side—freelance work, rental income, or investment income—you may need to make estimated payments for that portion.
You also don't need to make estimated payments if your expected tax liability for the year is less than $1,000. This is the threshold the IRS uses to decide whether to charge a penalty for underpayment. If you expect to owe less than $1,000, you can simply pay the full amount when you file your return.
If you're retired and living on Social Security and investment income, you may or may not need to make estimated payments depending on how much of your income is taxable. Social Security benefits are only partially taxable, and the taxation depends on your other income. Use the IRS worksheet in Publication 915 to figure out if you need to make estimated payments.
Adjusting Your Payments If Your Income Changes
Life happens, and your income may not match what you projected at the beginning of the year. If you earn significantly more or less than you expected, you can adjust your remaining estimated payments. There's no penalty for overpaying or underpaying as long as you stay within the safe harbor rules.
If you're earning more than expected, increase your remaining payments to avoid a large bill at tax time. If you're earning less, reduce your remaining payments so you don't overpay. You can recalculate after each quarter based on your actual income, or you can wait until mid-year and adjust your third and fourth quarter payments based on your income through June.
If your income drops significantly—for example, because you lost a client or had a major business expense—you can also request an extension to file your return. Form 4868 gives you an automatic six-month extension, though you still need to pay any taxes you owe by the original deadline to avoid interest and penalties.
Frequently Asked Questions
Can I pay estimated taxes monthly instead of quarterly?
No, the IRS only accepts estimated tax payments on the four quarterly deadlines. However, you can pay extra on one deadline to cover part of the next quarter if you want to spread out your payments differently. The safe harbor rules are based on quarterly deadlines, so paying monthly won't help you meet them.
What if I'm not sure how much to pay?
Start by using Form 1040-ES, which includes a worksheet to calculate your estimated payment. If your income is irregular or you have complex deductions, consider working with a tax professional or accountant. They can help you project your income accurately and set up a payment schedule that works for your cash flow.
Do I need to make estimated payments if I'm starting a new business?
If you expect your business to generate more than $1,000 in taxable income in your first year, yes. You'll need to estimate your income and expenses for the rest of the year and make payments starting in the quarter when you first have income. If your business starts late in the year, you may only need to make one or two payments.
What if I overpay my estimated taxes?
The overpayment will be credited toward your tax return when you file. You can either have the IRS refund the overpayment to you, or you can request that it be applied to your next year's estimated tax payments. Choose the option that makes sense for your situation when you file your return.
Can I make estimated tax payments for state taxes too?
Yes, most states that have an income tax also require estimated tax payments from self-employed people and others with income not subject to withholding. The deadlines and rules vary by state. Check your state's tax agency website for the specific requirements and payment methods.