Who needs to make quarterly payments
Make estimated tax payments if you expect to owe $1,000+ when you file your return, after withholding and credits.
Common Situations Requiring Estimates
- • Self-employment income (freelancing, consulting, gig work)
- • Investment income (dividends, capital gains, rental income)
- • Business profits from sole proprietorship or partnership
- • Retirement account withdrawals (traditional IRA/401k)
- • Unemployment compensation or other untaxed income
- • Insufficient withholding from regular employment
Safe harbor rules
Option 1: Pay 90% of Current Year
Calculate expected tax
Estimate total tax for current year, subtract withholding
Pay 90% by quarters
Divide by 4, make equal payments by due dates
Best for
Lower income years, significant income drops
Option 2: Pay 100%/110% of Prior Year
100% if AGI ≤ $150,000
Pay 100% of last year's total tax liability
110% if AGI > $150,000
High earners must pay 110% of prior year
Best for
Income growth, unpredictable earnings
Payment schedule and due dates
| Quarter | Income Period | Due Date 2024 | Payment Amount |
|---|---|---|---|
| Q1 | Jan 1 - Mar 31 | April 15, 2024 | 25% of annual estimate |
| Q2 | Apr 1 - May 31 | June 17, 2024 | 25% of annual estimate |
| Q3 | Jun 1 - Aug 31 | September 16, 2024 | 25% of annual estimate |
| Q4 | Sep 1 - Dec 31 | January 15, 2025 | 25% (or file return by Feb 1) |
Key Payment Rules
- • Payments due by 11:59 PM on due date (or next business day if weekend/holiday)
- • Must be received or postmarked by due date
- • Electronic payments must be submitted by 8 PM ET on due date
- • Can skip Q4 payment if you file and pay in full by February 1
Calculation methods
Method 1: Annualized Income Installment
Calculate tax on actual income earned each quarter
Good for seasonal businesses or uneven income
Requires Form 2210 Schedule AI
More complex but can reduce required payments
Method 2: Standard Equal Payments
Same payment amount each quarter
Based on either 90% current year or 100%/110% prior year
Simpler calculation and planning
Use Form 1040ES worksheets
Form 1040ES worksheet
Estimate adjusted gross income
Include all income sources: wages, self-employment, investments, etc.
Calculate deductions
Standard or itemized deductions, above-the-line deductions
Determine taxable income and tax
Apply tax brackets, add self-employment tax if applicable
Subtract credits and withholding
Child tax credit, earned income credit, W-2 withholding
Divide by 4 for quarterly amounts
Round up to avoid underpayment if close to threshold
Payment methods
Electronic Options (Recommended)
- • IRS Direct Pay: Free, bank transfer from checking/savings
- • EFTPS: Electronic Federal Tax Payment System
- • Tax software: Most software can schedule payments
- • Bank bill pay: Schedule recurring payments
Traditional Methods
- • Form 1040ES vouchers: Mail with check
- • Phone payments: 1-888-PAY-1040 (fees apply)
- • Credit/debit cards: Third-party processors (fees apply)
- • Money orders: If no checking account
Penalty calculations
Underpayment Penalty Details
Current penalty rate
8% annually (as of 2024), calculated quarterly on shortage
How it's calculated
Applied separately to each quarter's underpayment
Exceptions
Prior year AGI under $150K, casualty/disaster, unusual circumstances
Special situations
Seasonal Income
Use annualized income installment method
Pay based on income actually received each quarter
Can significantly reduce early-year payment requirements
Requires careful record-keeping and Form 2210
W-2 Employees with Side Income
Option 1: Make quarterly payments on side income
Option 2: Increase W-4 withholding at main job
Withholding is considered paid evenly throughout year
Can help avoid underpayment even with uneven side income
Retirees with Investment Income
Factor in Social Security taxation thresholds
Consider timing of IRA/401k withdrawals
May want voluntary withholding on distributions
Roth conversions create current-year tax liability
⚠️ Common Mistakes
- • Forgetting self-employment tax: 15.3% on net SE income often overlooked
- • Using wrong prior year amount: Must use total tax, not amount owed
- • Missing due dates: Even one day late can trigger penalties
- • Not adjusting for income changes: Continue old payments despite changed circumstances
- • Ignoring state requirements: Most states have separate estimated tax rules
💡 Pro Tip
Set up automatic bank transfers to a separate "tax savings" account with each payment you receive. Transfer 25-30% of self-employment income immediately, then use this account to make quarterly payments. This prevents spending money needed for taxes.
Frequently Asked Questions
What if I miss a quarterly payment deadline?
Make the payment as soon as possible to minimize penalty interest. The penalty is calculated separately for each quarter, so late payment on one quarter doesn't affect others. You may still owe penalty for the late quarter.
Can I adjust my payments during the year?
Yes, you can change payment amounts for future quarters based on updated income projections. If income drops significantly, you can reduce remaining payments. If it increases, increase payments to avoid penalties.
Do I need to make state quarterly payments too?
Most states with income taxes have their own estimated payment requirements, usually similar to federal rules but with different thresholds. Check your state tax agency website for specific requirements and due dates.
What if I overpay my quarterly estimates?
Overpayments are credited toward next year's taxes or refunded when you file your return. It's generally better to slightly overpay than underpay to avoid penalties, especially if amounts are uncertain.