Estimated Taxes: How Much to Pay & When They Are Due
Paying taxes isn’t just a once-a-year responsibility for many business owners and self-employed individuals. If you earn income that isn’t subject to regular withholding, the IRS generally expects you to make estimated tax payments throughout the year. Understanding how these taxes work, how much to pay, and when payments are due can help you avoid penalties, interest, and unnecessary stress. This guide breaks down the basics to help you stay compliant and financially prepared.
Key Takeaways
Estimated taxes are typically paid quarterly by individuals and businesses with income that is not subject to withholding.
Failing to pay enough or on time can result in IRS penalties and interest, even if you’re due a refund later.
Working with a tax professional can help you calculate accurate payments and avoid costly mistakes.
What Are Estimated Taxes?
Estimated taxes are periodic payments made to the IRS throughout the year to cover income taxes, self-employment taxes, and certain other federal tax liabilities. Instead of paying all your taxes at filing time, the IRS requires taxpayers who don’t have sufficient withholding to pay as they earn income.
These payments help ensure that taxpayers meet their annual tax obligations gradually, rather than facing a large bill at the end of the year.
Who Should Make Quarterly Tax Payments?
You may need to make quarterly estimated tax payments if you expect to owe $1,000 or more in federal taxes after subtracting withholding and credits. This commonly applies to:
- Self-employed individuals and freelancers
- Business owners and partners
- Independent contractors (1099 income earners)
- Investors with significant interest, dividend, or capital gains income
- Taxpayers with rental income or side businesses
If your income does not have taxes withheld automatically, you may be required to make quarterly payments.
How to Determine Your Payment Amount
Calculating estimated taxes involves projecting your income, deductions, credits, and tax liability for the year. Most taxpayers use one of two methods:
- Prior-year method: Pay at least 100% of your previous year’s tax liability (110% for higher-income taxpayers).
- Current-year method: Estimate your current year’s income and calculate taxes owed based on expected earnings.
You can use IRS Form 1040-ES to help calculate and submit estimated payments. Just be sure to periodically recalculate your payment amount. Income can fluctuate, especially for business owners, so you don’t want to overpay or underpay.
Estimated Tax Payment Due Dates
Estimated tax payments are generally due four times per year:
- April 15 – for income earned January through March
- June 15 – for income earned April through May
- September 15 – for income earned June through August
- January 15 (following year) – for income earned September through December
If a due date falls on a weekend or holiday, the deadline typically moves to the next business day.
What Happens If I Miss a Payment Deadline?
Missing a quarterly tax payment (underpaying) can lead to IRS penalties and interest, even if you ultimately pay your full tax bill when filing your return. Penalties are calculated based on:
- The amount underpaid
- The number of days overdue
- Applicable IRS interest rates
In some cases, taxpayers may qualify for penalty relief, but relying on exceptions can be risky without proper guidance.
Final Thoughts
Paying the correct amount of estimated taxes on time is a critical part of staying compliant with IRS requirements and protecting your financial future. For business owners and self-employed individuals, managing quarterly payments can be complex, especially when income changes throughout the year. Working with a trusted tax professional can help you accurately calculate payments, avoid penalties, and stay on track.