An estimated tax payment is money you send to the IRS or your state tax agency before the year ends, because your employer is not withholding enough tax from your paychecks—or you have no employer withholding at all.
If you are self-employed, a freelancer, a gig worker, or someone with investment income, the IRS expects you to pay tax four times a year instead of waiting until April. The amount you owe is based on what you predict you will earn in that year. You send it in quarterly installments: April 15, June 15, September 15, and January 15 of the following year.
The purpose is simple: the IRS wants money throughout the year, not a lump sum in April. If you do not make these payments and you owe more than $1,000 when you file your return, you will face a penalty for underpayment, even if you eventually pay what you owe. The penalty is calculated based on how late the money was and how much you were short.
Key Takeaways
- Estimated tax payments are required if you expect to owe $1,000 or more in federal tax and your employer is not withholding enough—or you have no W-2 income at all.
- You make four payments per year on April 15, June 15, September 15, and January 15, based on your predicted annual income.
- The IRS provides Form 1040-ES to help you calculate what to pay each quarter, though the calculation depends on your income, deductions, and tax credits.
- If you underpay, you will owe a penalty when you file your return, even if you pay the full amount owed by the filing deadline.
- You can adjust your quarterly payments if your income changes mid-year, and you can make payments online, by mail, or through your tax software.
Who has to make estimated tax payments
You are required to make estimated payments if you are self-employed, run a business, or have income that is not subject to withholding—such as rental income, capital gains, or dividends—and you expect to owe $1,000 or more in federal tax for the year. The $1,000 threshold is the trigger: if your total tax liability will be less than that, you do not have to make quarterly payments.
If you have a W-2 job and your employer withholds tax from your paycheck, you may not need to make estimated payments. However, if you have both W-2 income and self-employment income, or if your withholding is too low, you might need to make estimated payments to cover the gap. The key question is whether the tax being withheld from your paychecks will cover your total tax bill for the year.
Gig workers, contractors, and freelancers almost always need to make estimated payments because they receive no withholding. The same applies to people who live on investment income, rental income, or business profits. If you are unsure whether you need to make payments, Form 1040-ES includes a worksheet to help you decide.
How to calculate what you owe each quarter
The IRS provides Form 1040-ES, which includes a worksheet to estimate your annual income, deductions, and tax credits. You use this to calculate your total expected tax for the year, then divide it by four to get your quarterly payment amount. The form walks you through the calculation step by step.
The calculation depends on several things: your expected gross income for the year, the deductions you plan to claim (standard deduction or itemized), any tax credits you are may have access to to, and your filing status. If your income is uneven—for example, you earn more in summer than winter—you can use an annualized method to pay more in high-income quarters and less in low-income quarters. This method is more complex but can save you money if your income is seasonal.
Many tax software programs and tax professionals can calculate your estimated payment for you. If you use tax software, it often includes a tool to estimate quarterly payments based on your current year income. If you work with a CPA or tax preparer, they can calculate the amount and remind you when payments are due.
How and when to make payments
You can pay estimated taxes online through the IRS website using the Electronic Federal Tax Payment System (EFTPS), by credit or debit card through an approved payment processor, or by mail using a voucher. The online methods are faster and give you immediate confirmation of payment. If you pay by mail, you must include Form 1040-ES voucher with your check.
The four due dates are firm, though they shift slightly if they fall on a weekend or holiday. For 2024, the dates are April 15, June 17, September 16, and January 16, 2025. If you miss a due date, you can still make the payment, but you will owe a penalty calculated from the original due date. The penalty is based on the IRS underpayment rate, which changes quarterly.
If you use tax software or work with a tax professional, many can file your estimated payment for you or send you reminders when payments are due. Some accounting software for self-employed people includes built-in reminders and can even help you set aside money each month so you have it ready when the payment is due.
What happens if you pay too much or too little
If you pay more than you owe for the year, the overpayment will be refunded to you when you file your tax return, or you can choose to apply it to next year's estimated payments. There is no penalty for overpaying. Many people intentionally overpay their estimated taxes to avoid the underpayment penalty or to build in a cushion if their income is unpredictable.
If you pay less than you owe, you will owe a penalty when you file your return. The penalty is calculated based on how much you underpaid and how long the money was late. For example, if you owed $4,000 for the year but only paid $3,000 in estimated payments, you will owe the $1,000 shortfall plus a penalty on that $1,000. The penalty rate is set by the IRS and changes quarterly; for 2024 it ranges from 8 to 9 percent annually.
You can avoid or reduce the penalty if your income was uneven during the year. If you earned most of your income in the fourth quarter, you can use the annualized installment method when you file your return, which recalculates your payments based on when you actually earned the money. This method can eliminate the penalty if you paid enough in the quarters when you earned the most.
Adjusting your payments if your income changes
If your income changes during the year—you land a big contract, lose a client, or your business slows down—you can recalculate your estimated payments and adjust the next quarterly payment. You do not have to stick with the amount you calculated in January. Recalculate using Form 1040-ES whenever your income outlook changes significantly.
For example, if you expected to earn $50,000 but by June you realize you will earn $80,000, recalculate your total tax for the year and adjust your June and September payments upward. Conversely, if business slows and you now expect to earn $30,000, you can lower your remaining payments. The IRS does not penalize you for adjusting; it only penalizes you if your total payments for the year are too low.
Keep records of your income and expenses throughout the year so you can recalculate accurately. Many self-employed people review their estimated payments quarterly and adjust as needed. This approach reduces the risk of a large bill or refund when you file your return.
State estimated tax payments
Most states that have an income tax also require estimated tax payments if you owe more than a certain threshold—usually $500 to $1,000, depending on the state. The due dates are often the same as the federal dates (April 15, June 15, September 15, and January 15), though some states have different schedules. You pay state estimated taxes separately from federal payments, using your state's tax agency website or by mail.
A few states do not require estimated payments at all, even if you are self-employed. Check your state's tax agency website to find out whether you need to make state estimated payments and what the due dates and thresholds are. Some states allow you to pay online; others require a check by mail.
If you live in one state but earn income in another, you may need to make estimated payments to both states. This is common for freelancers and contractors who work across state lines. Your tax preparer or state tax agency can tell you which states require payments based on where you earned your income.
Frequently Asked Questions
What if I do not know how much I will earn this year?
Use your income from last year as a starting point, or estimate conservatively based on contracts you have signed or income you have already received. You can always adjust your payments later if your income changes. Overestimating is safer than underestimating because overpayments are refunded without penalty.
Can I make estimated payments monthly instead of quarterly?
No, the IRS requires four payments per year on the specified dates. However, you can set aside money monthly and pay it all at once on the quarterly due date. Some people use a separate savings account to hold their estimated tax money each month.
Do I need to make estimated payments if I have a loss in my business?
No. If your business has a loss or your total income is below the threshold for your filing status, you do not owe estimated taxes. However, you must still file a tax return to report the loss, which can carry forward to reduce taxes in future years.
What if I miss a quarterly payment deadline?
You can still make the payment after the due date, but you will owe a penalty calculated from the original due date. The penalty is based on the IRS underpayment rate. Pay as soon as you realize you missed the deadline to minimize the penalty.
Can I pay estimated taxes through my tax return instead of quarterly?
No. Estimated taxes must be paid on the quarterly due dates. When you file your return, you report what you paid and reconcile it with what you actually owe. If you did not pay enough, you owe the difference plus a penalty.