Estimated Quarterly Tax Payments Guide

If you have self-employment income or other tax situations, you may need to pay estimated quarterly taxes to avoid penalties. This guide covers who needs to make estimated payments, how to calculate installment amounts, deadlines, and tips to get it right.

Who Needs To Make Estimated Tax Payments?

You typically must make quarterly estimated tax payments if you are:

Self-employed as a freelancer, independent contractor or sole proprietor
An investor with capital gains or dividends
Retired with investment/retirement income
Earning income from the sharing economy (rentals, ride-share driving, etc.)
An employee with substantial side income from other sources

Basically, if you will owe $1,000 or more in taxes for income not subject to withholding, estimated payments are required.

How Estimated Taxes Work

Estimated taxes function as pay-as-you-earn installments toward your tax liability:

You make payments each quarter rather than all at once annually.
The IRS applies the installments as credits on your tax return for the year.
If your estimated payments are less than what you owe for the year, you must pay the difference by the filing deadline or face penalties.

Properly managed quarterly payments help ensure you fulfill tax obligations in a timely manner throughout the year.

Calculating Estimated Tax Amounts

Follow these steps to determine appropriate estimated payment amounts:

1. Estimate Your Adjusted Gross Income

Add up all your anticipated income sources for the coming year.
Subtract any above-the-line deductions like retirement contributions or HSA contributions.

2. Determine Your Taxable Income

Subtract the standard or itemized deductions you plan to take.
This is your projected taxable income amount.

3. Calculate Total Tax Bill

Apply your expected tax rate to the taxable income amount.
Include any additional taxes like self-employment tax.

4. Factor in Credits and Withholding

Subtract tax credits you anticipate qualifying for.
Subtract taxes already paid through withholding from a W-2 job.

5. Divide by 4

Take the total estimated taxes you’ll owe after credits and withholding.
Divide this amount by 4 to determine the correct quarterly payment.

Re-run these estimations each quarter as income or deductions change.

Quarterly Payment Due Dates

The IRS requires estimated payments on the following quarterly schedule:

1st Quarter: April 15th
2nd Quarter: June 15th
3rd Quarter: September 15th
4th Quarter: January 15th of the following year

If the due date falls on a weekend or holiday, payment must be made the last business day prior.

These due dates align with calendar quarters and help spread out tax obligations in a manageable way throughout the year.

Tips for Making Quarterly Tax Payments

Follow these tips for smooth quarterly tax payment processes:

Mark due dates on your calendar and set payment reminders to avoid forgetting.
Seek guidance from a tax professional if uncertain about calculations or eligibility.
Save documentation like 1099 forms and income records to validate your estimates.
Err toward overestimating your income and payments if unsure.
Make payments electronically and request email receipts to simplify records.
Reassess income and deductions before each payment date to make adjustments as needed.
Contact the IRS for clarification if you receive any penalties for underpayment.

Accurate, timely quarterly tax payments keep you compliant and avoid financial penalties.

Penalties for Underpayment

You may face IRS penalties if you fail to pay enough estimated tax for the year through your quarterly payments:

Underpayment Penalty – Charges interest on the unpaid amount, based on the IRS underpayment rate plus 3%.
Late Payment Penalty – Failure to pay an installment by the deadline triggers a 0.5% monthly penalty on the overdue amount.
Filing Penalty – If you still owe taxes when you file, the IRS may impose additional fees.
Accuracy Penalty – Substantial underpayment could make you liable for a 20% penalty for negligence or disregard of tax rules.

To qualify for a penalty waiver, IRS-defined safe harbor rules around past payments or income thresholds must be met.

How To Make Estimated Tax Payments

You have several options for submitting quarterly estimated tax payments:

Through your online IRS account for direct bank account withdrawals
IRS Direct Pay for debit/credit card or bank account payments
Mail in Form 1040-ES with a check or money order
Payroll services or tax software may support making estimated payments
Mobile payment apps connected to the IRS like Pay1040

Choose the most convenient payment method that provides payment confirmation and supports your record-keeping needs.

Making quarterly estimated tax payments may take some getting used to, but a routine system helps independent earners and investors fulfill tax obligations in a manageable way throughout the year. With some planning and discipline, you can make the quarterly payment process relatively smooth and painless.