Definition
Estimated tax payments are periodic advance payments made to the IRS or a state tax agency on income that isn’t subject to automatic withholding. These payments are commonly required for self-employed individuals, freelancers, small business owners, investors, and others who receive untaxed yearly income.
The IRS uses a “pay-as-you-go” model, meaning taxes must be paid as income is earned—not just at year-end. Estimated tax payments help taxpayers avoid large tax bills or penalties when filing their annual return.
How Estimated Tax Payments Work
If you earn income that doesn’t have federal (or state) taxes withheld—like self-employment income, rental income, dividends, capital gains, or gig work—you’re typically required to calculate and submit estimated tax payments four times a year.
These payments cover:
- Federal income tax
- Self-employment tax
- Alternative minimum tax (AMT)
- Other applicable taxes
The IRS provides Form 1040-ES to help individuals estimate and remit these payments. Payments can be made by mail or electronically through IRS.gov or the IRS2Go app.
Quarterly Due Dates
| Period | Income Earned | Payment Due |
| Q1 | January 1 – March 31 | April 15 |
| Q2 | April 1 – May 31 | June 15 |
| Q3 | June 1 – August 31 | September 15 |
| Q4 | September 1 – December 31 | January 15 (following year) |
The deadline shifts to the next business day if a due date falls on a weekend or federal holiday.
Who Must Pay Estimated Taxes
You’re generally required to make estimated tax payments if:
- You expect to owe $1,000 or more in tax when your return is filed (for individuals)
- You receive income not subject to withholding
- You are self-employed, an independent contractor, landlord, or investor, or receive alimony, retirement distributions, or Social Security (if taxable)
Corporations must make estimated payments if their expected tax liability is $500 or more.
Who Is Exempt
You do not need to make estimated tax payments if all of the following are true:
- You had no tax liability last year
- You were a U.S. citizen or resident all year
- Your prior tax year covered the full 12 months
Employees can also avoid estimated taxes by increasing withholding through Form W-4.
How to Calculate Estimated Tax
To calculate your estimated tax, estimate your:
- Adjusted gross income (AGI)
- Taxable income
- Deductions and credits
- Applicable taxes (income, self-employment, AMT)
You can use last year’s tax return as a starting point, adjusting for expected changes. The IRS offers a worksheet in Form 1040-ES to guide the calculation.
You can recalculate and adjust future payments if your income varies during the year.
Penalties for Underpayment
The IRS may charge a penalty if:
- You underpay taxes by more than $1,000
- You fail to pay at least 90% of your current-year tax liability or 100% of last year’s (110% if your AGI was over $150,000)
You can use Form 2210 to determine whether you owe a penalty and possibly qualify for a waiver due to:
- Natural disasters or unusual circumstances
- Retirement (after age 62)
- Disability
Estimated Taxes for Business Owners
Business owners—including sole proprietors, S corporation shareholders, and partners—must pay estimated taxes on profits if they expect to owe $1,000 or more in combined income and self-employment taxes.
Some business owners increase paycheck withholding (from part-time employment) to offset the need for separate quarterly payments.
Payment Methods
Estimated tax payments can be made through:
- Online via IRS Direct Pay or EFTPS
- Mail using Form 1040-ES vouchers
- IRS2Go mobile app
- Business tax account (for entities)
- By check or money order payable to “United States Treasury”
You can divide your estimated payments into smaller, more frequent installments (e.g., monthly) as long as each quarter’s total is paid on time.
Example: A freelance graphic designer expects to earn $80,000 in 2025. After deductions and self-employment tax, she estimates her total federal tax liability to be $15,000. She submits $3,750 per quarter (April, June, September, and January) to avoid penalties and balance her cash flow across the year.
Estimated Taxes vs. Withholding
| Feature | Estimated Tax Payments | Withholding |
| Who pays | Self-employed, investors, untaxed earners | Traditional employees |
| How paid | Manually each quarter | Automatically deducted from paycheck |
| Forms used | Form 1040-ES | Form W-4 (adjust withholding) |
| Flexibility | Can adjust or re-estimate anytime | Less flexible during the tax year |
Estimated tax payments are essential for anyone earning income outside of traditional employment. Paying accurately and on time can help avoid penalties, manage cash flow, and comply with IRS rules. Understanding your estimated tax obligations is critical for smooth year-end filing and financial planning.
