How Quarterly Tax Payments Work and Who Needs to Make Them

What quarterly tax payments are and who has to make them

A quarterly estimated tax payment is a payment you send to the IRS four times a year if you owe taxes that won't be withheld from a paycheck. The IRS calls these payments "estimated tax," and they're due on specific dates: April 15, June 15, September 15, and January 15 of the following year.

You need to make quarterly payments if you're self-employed, have investment income, receive rental income, or earn money in any way where your employer doesn't take taxes out automatically. If you're an employee and your only income comes from a W-2 job, your employer withholds taxes from each paycheck, so you don't make quarterly payments.

The IRS doesn't send you a bill for quarterly payments. You calculate what you owe, and you're responsible for sending it in on time. If you don't pay enough throughout the year, you'll owe the balance when you file your tax return, plus interest and possibly a penalty for underpayment.

Key Takeaways

• Quarterly payments are due on April 15, June 15, September 15, and January 15, and you must send them yourself—the IRS does not bill you.
• You need to make quarterly payments if you're self-employed, have rental or investment income, or earn money where taxes aren't automatically withheld.
• You calculate your own estimated tax based on your expected income for the year, and you can use IRS Form 1040-ES to help with the math.
• Paying too little throughout the year means you'll owe the difference plus interest and penalties when you file your return.
• If your income changes during the year, you can adjust your remaining quarterly payments instead of sticking to the original amount.

How to calculate what you owe each quarter

The IRS provides Form 1040-ES to help you figure out your estimated tax. The form includes a worksheet where you estimate your total income for the year, subtract deductions you expect to claim, and calculate your tax liability. Then you divide that by four to get your quarterly payment amount.

If you're self-employed, you also need to account for self-employment tax, which covers Social Security and Medicare. This is roughly 15.3% of your net self-employment income, and it's in addition to income tax. Form 1040-ES walks you through this calculation too.

Your first quarterly payment (due April 15) is based on your income from the previous year if you haven't earned much yet in the current year. As the year goes on and you have actual income numbers, you can recalculate and adjust your remaining payments. This matters if your income is uneven—say you have a big contract in summer but nothing in fall.

You can also look at what you paid in taxes last year. If your tax liability this year will be similar, you can divide last year's total tax by four and pay that amount each quarter. This is simpler if your income is steady.

Where and how to send quarterly payments

The IRS offers several ways to pay. The most common are:

• IRS Direct Pay (irs.gov/payments): You log in, enter your payment amount and due date, and the IRS pulls the money from your bank account on the date you choose. There's no fee.
• Electronic Federal Tax Payment System (EFTPS): You enroll once, then schedule payments online or by phone. This is free and works with most banks.
• Credit or debit card: You can pay through a third-party processor, but they charge a fee (usually 1.5% to 2% of the payment).
• Check or money order by mail: Write your Social Security number, tax year, and "2024 Form 1040-ES" on the check. Mail it to the IRS address for your state (listed on Form 1040-ES).

Whichever method you choose, make the payment by the due date. If the due date falls on a weekend or holiday, the deadline moves to the next business day. The IRS considers a payment on time if it's received by midnight on the due date (or the next business day if the deadline shifts).

What happens if you miss a quarterly payment or pay too little

If you don't pay enough in quarterly payments, the IRS will charge you underpayment penalties and interest when you file your return. The penalty is calculated based on how much you underpaid and for how long. Interest accrues daily on any unpaid tax.

You can avoid the penalty if you pay at least 90% of your current year's tax liability through quarterly payments, or 100% of last year's tax liability (110% if your adjusted gross income last year was over $150,000). The IRS uses whichever is lower.

If you miss a quarterly payment deadline entirely, you still owe the payment. Send it as soon as you realize the mistake. The penalty will apply, but paying late is better than not paying at all—the longer you wait, the more interest accumulates.

If your income drops during the year and you realize you've overpaid in quarterly payments, you don't lose that money. The overpayment is credited toward your tax return when you file, and you can ask for a refund if you've paid more than you owe.

Adjusting payments if your income changes

You don't have to stick with the same quarterly payment all year. If your income is higher or lower than you expected, you can recalculate and adjust your remaining payments. This is especially useful if you're self-employed and your income varies by season.

To adjust, recalculate your total expected income for the year using the same Form 1040-ES worksheet. Subtract what you've already paid in the first, second, or third quarter, and divide the remaining tax liability by the number of quarters left. That's your new quarterly payment amount.

For example, if you paid $2,000 per quarter for the first two quarters but then land a big contract in July, you might recalculate and pay $3,500 for the third and fourth quarters instead. This keeps you from overpaying early in the year and underpaying later.

Quarterly payments and your tax return

When you file your annual tax return, you report all the quarterly payments you made. The IRS matches these against what you actually owe based on your full-year income and deductions. If you paid too much, you get a refund. If you paid too little, you owe the difference plus interest and penalties.

Keep records of every quarterly payment you make—confirmation numbers from online payments, cancelled checks, or receipts. These prove to the IRS that you paid on time if there's ever a question.

If you're working with a tax professional or accountant, they can help you calculate your quarterly payments and adjust them as your income changes. Some accounting software also tracks quarterly payments and reminds you of upcoming due dates.

Frequently Asked Questions

What if I don't know my income for the year yet?

Use your best estimate based on contracts you have, your average income from previous years, or your current rate of earnings. You can adjust your payments later if your actual income is different. It's better to estimate and adjust than to guess wrong and face a large bill at tax time.

Can I pay quarterly taxes with a credit card?

Yes, but you'll pay a processing fee of roughly 1.5% to 2% of the payment amount. IRS Direct Pay and EFTPS are free alternatives if your bank supports them. The fee is a cost you can deduct as a business expense on your tax return.

What if I'm late paying a quarterly payment?

Pay it as soon as you realize the mistake. You'll owe underpayment penalties and interest, but the sooner you pay, the less interest accumulates. The IRS will calculate the exact amount owed when you file your return.

Do I need to make quarterly payments if I'm retired?

Only if you have income beyond Social Security or pensions—for example, rental income, investment income, or income from a side business. If your only income is Social Security or a pension with taxes withheld, you don't need to make quarterly payments.

Can I pay all four quarters at once?

Yes, you can pay the full year's estimated tax in one lump sum. However, the IRS expects you to pay by each quarterly due date. If you pay everything in April, you'll owe underpayment penalties for the June, September, and January payments you didn't make on time, even though you paid the total amount owed.