Quarterly estimated taxes are payments you send to the IRS during the year on income that has no tax withheld, such as freelance, self-employment, rental or investment income. An employer withholds from each paycheck. When no one does that for you, the IRS expects you to pay as you earn, in installments, and settle up when you file. If you pay too little or too late, an underpayment penalty can be added to the tax itself.
This article covers US federal rules in general terms. Many states run their own estimated tax system with different dates, so check your state tax agency. Dollar thresholds, percentages and dates change, so this page describes the rules in words and points to where the current numbers live.
Who generally has to make estimated payments
The IRS says individuals generally need to pay estimated tax when they expect to owe a minimum amount of tax for the year after subtracting withholding and refundable credits. The exact dollar threshold is set in the Form 1040-ES instructions, so confirm the current figure there.
Situations that commonly trigger estimated payments:
- Freelance, gig or contractor income, whether or not a 1099 form arrives.
- A sole proprietorship or single-member LLC with a profit.
- Interest, dividends or capital gains with no tax withheld.
- Rental income.
- Side income on top of a regular job, where the job’s withholding does not cover the extra tax.
You may not need to pay quarterly if withholding and credits will cover enough of your total tax. A person with a W-2 job and a small side business can sometimes raise paycheck withholding instead, which is covered in how to file taxes with side income and a regular job. Whether that works for you depends on your numbers. A tax professional or the IRS Tax Withholding Estimator can help you check.
What you are paying for
Estimated payments cover income tax and, if you are self-employed, self-employment tax. Self-employment tax is how self-employed people pay into Social Security and Medicare. The IRS describes the rate as 15.3 percent, made up of 12.4 percent for Social Security and 2.9 percent for Medicare. Only part of your earnings is subject to the Social Security portion each year, and that annual limit changes, so look it up on the IRS site for the year you are in. You can deduct the employer-equivalent half of self-employment tax when figuring your adjusted gross income.
Your total bill is roughly:
- Income tax on your taxable income, after the deductions and credits you expect to claim.
- Self-employment tax on net self-employment earnings, once they pass the small minimum listed in the Schedule SE instructions.
- Minus tax already withheld from a job and credits you expect.
The four payment periods
The IRS divides the year into four payment periods, and each has its own due date. They are not equal quarters.
| Payment | Income earned during | Due in |
|---|---|---|
| 1 | January through March | Mid-April |
| 2 | April and May | Mid-June |
| 3 | June through August | Mid-September |
| 4 | September through December | Mid-January of the next year |
The second period covers only two months and the fourth covers four, which is why people who assume payments come every three months miss the June deadline. When a date lands on a weekend or legal holiday, it moves to the next business day. Exact calendar dates for the current year are in the Form 1040-ES instructions. Generally, the fourth payment is not needed if you file your return and pay the balance early enough in the new year, and the same instructions explain the cutoff.
How to estimate the amount
Form 1040-ES includes a worksheet. In plain terms, you project your income for the year, subtract the deductions you expect, calculate income tax and self-employment tax, subtract withholding and credits, and divide what remains across the payment periods.
The method matters more than any single example, because your numbers depend on filing status, other income, deductions and credits. Many freelancers set aside a share of every payment they receive as a buffer, then adjust once they see how their first full return turns out. Any single percentage is a rule of thumb, not a rule, and the right share can be lower or higher than what a friend uses.
If your income is already known part-way through the year, rerun the worksheet instead of repeating the same payment. The point of an estimate is that you are allowed to update it.
The safe harbor idea
You do not have to predict income perfectly. Publication 505 describes safe harbors, which are levels of payment that protect you from the underpayment penalty even if your final bill turns out higher. In outline:
- Paying at least a stated percentage of this year’s tax, or
- Paying at least 100 percent of the tax shown on last year’s return, or a higher percentage if last year’s adjusted gross income was above a threshold, provided last year’s return covered a full 12 months.
The IRS page on estimated taxes frames it as paying the smaller of those amounts. The exact percentages and the income threshold are in Publication 505 and the Form 1040-ES instructions, so check them for the year you are paying. The prior-year route is useful when income is growing, because the payment is known in advance. You still owe any remaining balance when you file, just without the penalty.
How to pay
The IRS lets you pay online, by phone or from a mobile device, including through your IRS online account and Direct Pay, and you can also mail a check with a 1040-ES voucher. Paying from a bank account through IRS tools has no fee. Paying by card goes through a payment processor that charges a fee.
Keep a record of the date and amount of every payment, such as a confirmation email or a simple spreadsheet. You report the total on your return, and a missing record is a common source of confusing penalty letters. The habits in how to organize tax records throughout the year make this easy.
What happens if you pay late or too little
The underpayment penalty is calculated like interest on the shortfall in each period, from the due date until the amount is paid or the filing deadline arrives. The rate is tied to a federal short-term rate that the IRS updates, so look up the current rate. You work it out on Form 2210 or let tax software do it. A modest shortfall usually costs a modest penalty, but it grows when the gap is large or lasts much of the year.
This penalty is separate from penalties for filing late or paying the final balance late. If you end up with a bill you cannot cover, read what to do if you owe taxes and cannot pay in full.
When quarterly payments are a poor fit
- They tie up cash. You pay before you know your final income. If earnings are lumpy, see estimated payments when income is uneven.
- Overpaying earns nothing. Extra payments sit with the IRS until you file, and a refund is just your own money coming back.
- Mistakes are easy. Wrong period dates, forgetting self-employment tax, or applying a payment to the wrong tax year all cause mismatches.
- Withholding can be simpler. If you also have a job, extra withholding is often less work, and tax withheld is generally treated as paid evenly through the year no matter when it was taken.
For questions about your own situation, such as whether you must pay at all or how much, a qualified tax professional or a free Volunteer Income Tax Assistance site can help.
To turn an estimate you already have into equal payments, use the estimated-tax set-aside worksheet.
Where this comes from
This article draws on the IRS pages on estimated taxes, on self-employment tax and on the Tax Withholding Estimator, plus general knowledge of Publication 505 and Form 1040-ES, which are named for you to check but were not quoted for figures. Tax rules, thresholds, percentages, penalty rates and due dates change, so check the current figures at irs.gov (IRS) or in the form instructions.