Understanding Estimated Taxes: Who Pays Them and How to Calculate Them
The U.S. tax system is pay-as-you-go: taxes are due throughout the year, not just at filing time. For employees, withholding from paychecks handles this automatically. For self-employed individuals, freelancers, investors, and others without sufficient withholding, quarterly estimated tax payments are required. Missing them can result in underpayment penalties.
Who Must Make Estimated Tax Payments
You generally must make estimated tax payments if you expect to owe at least $1,000 in federal tax for the year after subtracting withholding and credits, and your withholding will cover less than 90% of the current year's tax liability or 100% of the prior year's tax liability (110% for high-income filers). The most common situations: self-employment, freelancing, rental income, significant investment gains, partnership or S-corporation distributions, and spousal income in households where one spouse's withholding is insufficient for the combined liability.
The Four Payment Due Dates
The IRS requires four estimated tax payments per year with specific due dates: April 15 for income received January 1 through March 31; June 15 for April 1 through May 31; September 15 for June 1 through August 31; and January 15 of the following year for September 1 through December 31. Note the unequal periods — the second quarter covers only two months. Missing a due date starts accruing an underpayment penalty from that date forward.
Calculating Your Estimated Payments
For self-employed individuals, calculate your estimated tax liability: multiply projected net self-employment income by 92.35% (accounting for the employer portion of SE tax deduction), then multiply by 15.3% for SE tax. Add income tax at your marginal rate on all taxable income. Subtract any withholding from W-2 employment and anticipated credits. Divide the remainder by four for quarterly payments. Use IRS Form 1040-ES worksheet for a structured calculation.
Making Payments
Pay through IRS Direct Pay at irs.gov, the EFTPS system (Electronic Federal Tax Payment System), or by mailing a check with Form 1040-ES. State estimated taxes are separate — most states with income taxes require quarterly estimated payments as well, with state-specific due dates that may differ from federal dates.
Our tax professionals can help you estimate your quarterly obligations and set up a system that avoids underpayment penalties. Contact us or review our resources for estimated tax calculators.