What estimated tax payments are and who needs to make them
Estimated tax payments are quarterly payments you send to the IRS when you expect to owe $1,000 or more in taxes for the year and no employer is withholding taxes from your income. The IRS requires these payments on a fixed schedule — four times per year — so you do not owe a large lump sum when you file your annual return.
You typically need to make estimated payments if you are self-employed, a freelancer, a gig worker, a business owner, or someone with significant investment income. If you have a W-2 job where your employer withholds taxes, you usually do not need to make estimated payments. However, if you have both a W-2 job and side income, you may need to make estimated payments on the side income if your employer is not withholding enough.
The IRS does not send you a bill or notice for estimated taxes. You are responsible for calculating the amount, knowing the due dates, and sending the payment on time. Missing a payment or underpaying can result in a penalty, even if you ultimately owe nothing when you file your return.
Key Takeaways
- Estimated tax payments are due four times per year on specific dates: April 15, June 15, September 15, and January 15 of the following year.
- You calculate your estimated tax by projecting your annual income and subtracting deductions, then dividing by four to find each quarterly payment.
- You can pay online through IRS Direct Pay or the Electronic Federal Tax Payment System (EFTPS), by mail with Form 1040-ES, or by phone.
- If you miss a payment or pay late, the IRS charges a penalty based on the underpayment amount and how long it was unpaid, even if you owe no tax overall.
- You can adjust your estimated payments during the year if your income changes, and any overpayment is credited to your next payment or refunded when you file.
The four due dates each year
The IRS divides the tax year into four quarters, each with its own payment deadline. These dates do not change year to year, though the IRS may shift them if the date falls on a weekend or federal holiday.
| Quarter | Income Period | Due Date |
|---|---|---|
| First | January 1 – March 31 | April 15 |
| Second | April 1 – May 31 | June 15 |
| Third | June 1 – August 31 | September 15 |
| Fourth | September 1 – December 31 | January 15 (of the following year) |
If any of these dates falls on a Saturday, Sunday, or federal holiday, the deadline moves to the next business day. For example, if April 15 is a Saturday, the deadline becomes Monday, April 17. The IRS website lists the exact dates each year.
You do not have to make all four payments if you do not expect to owe taxes for the full year. However, if you stop making payments partway through the year and then owe a large amount at tax time, you may face underpayment penalties on the quarters you skipped.
How to calculate your estimated tax payment
The IRS provides Form 1040-ES, which includes a worksheet to help you calculate your estimated tax. The basic steps are: project your total income for the year, subtract deductions and credits you expect to claim, calculate the tax on that amount, and divide by four to find each quarterly payment.
Start by listing all expected income sources: self-employment income, rental income, investment income, alimony, and any other taxable income. Be realistic about what you will actually earn. If you are new to self-employment, use your best estimate; if you have prior years' returns, use those as a guide and adjust for known changes.
Next, subtract business expenses if you are self-employed — supplies, equipment, rent, utilities, and other ordinary costs of running your business. You will also subtract the standard deduction or itemized deductions you plan to claim. Then apply any tax credits you expect, such as the Earned Income Tax Credit or child tax credits. The result is your estimated tax liability for the year. Divide that number by four to find each quarterly payment.
If your income varies significantly by quarter — for example, if you earn most of your income in the fall — you can pay different amounts each quarter instead of equal payments. This requires calculating your tax for each quarter separately and paying only what you owe for that period. This approach can help you avoid overpaying early in the year.
How to submit your estimated tax payment
You have several ways to pay estimated taxes to the IRS. The fastest and most common method is online through IRS Direct Pay, which is free and allows you to schedule payments in advance. You can also use the Electronic Federal Tax Payment System (EFTPS), a separate IRS system that requires enrollment but also allows advance scheduling.
To use IRS Direct Pay, visit the IRS website, enter your Social Security number or Employer Identification Number, and specify the payment amount and due date. The payment is deducted from your bank account on the date you choose. EFTPS works similarly but requires you to enroll first, which takes one to two business days.
If you prefer not to pay online, you can mail a check or money order with Form 1040-ES to the IRS address listed in the form instructions. Include your name, address, Social Security number, and the tax year on your payment. Mail payments should be sent at least one week before the due date to arrive on time.
You can also pay by phone through the IRS automated system or by credit or debit card through a third-party processor (though the processor charges a fee). Whichever method you use, keep a record of your payment confirmation number or receipt. The IRS applies payments to the quarter you specify, so make sure you indicate which quarter's payment you are making.
Penalties for late or missed payments
If you do not pay estimated taxes by the due date, the IRS charges an underpayment penalty. The penalty is calculated on the amount you underpaid and the number of days the payment was late. The penalty rate changes quarterly and is based on the federal short-term interest rate plus 3 percent.
You can avoid the penalty if you pay at least 90 percent of your current year's tax or 100 percent of your prior year's tax (110 percent if your prior year adjusted gross income was over $150,000). For example, if you owed $10,000 in taxes last year, you can pay $10,000 in estimated taxes this year and avoid the penalty, even if you end up owing more.
The penalty applies even if you ultimately owe no tax when you file your return. For instance, if you underpaid estimated taxes but then had a large deduction or credit that eliminated your tax liability, you still owe the penalty on the underpayment. However, if you overpay your estimated taxes, the overpayment is credited to your next payment or refunded when you file your return.
If you miss a payment entirely, the penalty grows larger the longer it remains unpaid. Paying as soon as you realize you missed a deadline reduces the penalty amount. If you have a legitimate reason for the late payment — such as a serious illness or casualty loss — you can request penalty relief from the IRS, though approval is not may provide.
Adjusting your payments if your income changes
You do not have to stick with the same estimated tax payment all year if your income changes. If you earn significantly more or less than you projected, you can recalculate your estimated tax and adjust your remaining quarterly payments.
For example, if you projected $50,000 in self-employment income but by mid-year you realize you will earn $80,000, you can increase your third and fourth quarter payments to account for the higher income. Conversely, if a major client stops working with you and your income drops, you can lower your remaining payments. This prevents you from overpaying early in the year and then waiting for a refund.
To adjust your payments, recalculate your annual income and tax using the same Form 1040-ES worksheet, then divide the remaining tax liability by the number of quarters left in the year. Submit the new payment amount for the next due date. You can adjust as many times as needed during the year.
Frequently Asked Questions
What happens if I miss an estimated tax payment deadline?
The IRS charges an underpayment penalty on the amount you did not pay, calculated from the due date until you pay or file your return. The penalty rate changes quarterly. You can reduce the penalty by paying as soon as you realize you missed the deadline. If you have a valid reason for the late payment, you can request penalty relief from the IRS.
Can I pay all four quarters at once instead of making four separate payments?
Technically yes, but it is not recommended. If you pay all four quarters on the first due date (April 15), the IRS treats the extra payments as overpayments for the later quarters, and you do not earn interest on the overpayment. It is better to pay each quarter by its due date so you do not tie up money unnecessarily.
Do I need to make estimated tax payments if I am not sure I will owe taxes?
If you expect to owe $1,000 or more, you should make estimated payments. If you are unsure, calculate your projected tax using Form 1040-ES. If the result is less than $1,000, you are not required to make estimated payments, though you may still owe tax when you file your return.
What if I overpay my estimated taxes?
Any overpayment is credited to your next quarterly payment or refunded when you file your annual return. You can also request that the overpayment be applied to the following year's estimated taxes. There is no penalty for overpaying.
Can I use last year's tax return to calculate this year's estimated payments?
Yes. If your income is stable year to year, you can pay 100 percent of last year's tax in estimated payments this year and avoid underpayment penalties, even if you owe more this year. If your prior year income was over $150,000, you must pay 110 percent of last year's tax to use this safe harbor.