If you don't think much about paying income taxes outside of filing a return each spring, it could be because your taxes are regularly withheld from your paycheck and paid to the IRS. This isn't the case for all taxpayers. And if you're one of them—a freelancer or small business owner, for example—you're responsible for making estimated quarterly tax payments on your own. Here's a closer look at what those are, and why not paying them could cost you.
What are estimated quarterly tax payments? Estimated quarterly tax payments are exactly what they sound like: tax payments an individual makes to the IRS on a quarterly basis, based on estimates of what their total tax bill will be for the year.
Estimated taxes consist of multiple parts:
- federal income tax
- state income tax (if applicable)
- self-employment tax (Social Security and Medicare)
In some cases, these quarterly tax payments are truly estimates, based on what an individual owed in the prior tax year. But it's also possible to make payments quarterly based on what you've actually earned.
Who might have to pay estimated quarterly taxes?
Estimated quarterly taxes are most frequently paid by freelancers, the self-employed, and business owners. In most cases, you must pay estimated tax for 2024 if both of the following apply: You'd expect to owe at least $1,000 in taxes for the current year (after subtracting refundable credits and withholdings) and expect your withholdings and refundable credits to be less than the smaller of:
- 90% of the tax shown on your current year's tax return
- or 100% of the tax shown on your prior year's return
See notes and exceptions at IRS.gov.
For freelancers who are also working a salaried job, it might be possible to ask your employer to adjust your withholdings to cover any taxes you'd pay on freelance or project-based work. Then, you wouldn't need to make estimated quarterly tax payments.
The same is true for investors with regular employment—aka anyone who sold real estate, stocks, bonds, or other securities; and/or personal items, such as jewelry or vehicles—and realized capital gains during the year. Investors who receive large dividend payments might also be required to pay quarterly taxes on those earnings, if they meet the $1,000 threshold and other requirements. Likewise, if you had significant lottery or other prize winnings, you may also be subject to paying estimated quarterly taxes.
When are estimated quarterly taxes due?
Estimated quarterly taxes are due—you guessed it—quarterly.
While specific dates could vary slightly from year to year, they will always fall in the middle of January, April, June, and September, typically on the 15th of the month. If the 15th falls on a weekend or federal holiday, the due date will typically be the next weekday.
Below are the due dates for quarterly taxes in 2024 and for 2024 quarters. Keep in mind that the quarters aren't all 3 months long.
|Estimated quarterly tax payment due dates
|For income earned:
|Estimated quarterly taxes are due:
|September 1 through December 31, 2023
|January 16, 2024
|January 1 through March 31, 2024
|April 15, 2024
|April 1 through May 31, 2024
|June 17, 2024
|June 1 through August 31, 2024
|September 16, 2024
|September 1 through December 31, 2024
|January 15, 2025
How to calculate estimated quarterly taxes
Estimated quarterly taxes can be calculated in 2 ways. You can base your quarterly payments on what you owed the prior year, or you can annualize based on what you've already earned for the current year.
How to estimate based on the prior year
For this approach, you'd take the amount that you owed the previous year and divide that number by 4. If, for example, you owed $20,000 in taxes last year, you'd make 4 equal payments of $5,000 each quarter. This method is generally best for people on year 2 or more of earning income without taxes withheld—and whose income is fairly stable from year to year, as well as throughout a single year. If you make significantly more compared to the prior year, you might need to adjust your payments to avoid underpaying and incurring penalties.
How to estimate by annualizing
If you choose to annualize, on the other hand, you'd make payments at the end of each quarter based on what you've actually earned so far that year. At the end of the first quarter, you'd pay taxes based on what you earned that quarter; at the end of the second quarter, you'd pay taxes based on what you earned in the first and second quarters; and so on.
This method could be best for people whose income fluctuates substantially from year to year, as well as from quarter to quarter. It makes it possible to avoid underpayment and corresponding penalties—and a potentially high quarterly tax bill when you didn't earn enough to pay it.
How to pay estimated quarterly taxes
Paying your estimated quarterly taxes is a straightforward process. Follow the steps below.
- Determine which method you'll use to estimate your payments. Whether you annualize or base your payments on the past year's tax return is up to you. The IRS provides a worksheet you can use to calculate payments with the annualized method.
- Determine your payment schedule. While payments are due quarterly, you don't have to make only 4 payments. If you wish, you may pay more frequently—for example, monthly. Choose how often you'll make estimated payments and set reminders in your calendar, so you don't forget those dates.
- Make your federal payments. The IRS offers a few ways to pay your quarterly tax bill. If you pay by mail, you'll need to send a check with a completed Form 1040-ES. You can also pay online, over the phone, or through the IRS2Go mobile app. According to the IRS, the Electronic Federal Tax Payment System (EFTPS) is the easiest way for someone to pay their tax bill.
- Make your state payments. Your state might also expect quarterly tax payments, and the threshold to pay quarterly taxes for your state might be lower than the federal threshold. Look into whether and how your state collects quarterly taxes, and select the option that works best for you if you need to pay quarterly. This might involve creating new payment accounts or filling out forms in addition to what's required for federal tax payments.
FAQs about estimated taxes
Do I have to pay estimated quarterly taxes my first year with non-salaried income?
Yes. You're responsible for paying estimated quarterly taxes even if it's your first year in business or as a freelancer. Because you won't have your previous year's tax return to guide you, the annualized method for estimating will probably be best.
What happens if you don't pay estimated quarterly taxes?
If you don't make estimated quarterly tax payments but you owe them, you'll be charged an underpayment penalty. The exact penalty amount depends on several factors, including:
- the amount you owe in taxes
- the period for which you underpaid
- the interest rate charged on underpayment, which gets updated quarterly
The IRS also charges interest on penalties, which can increase your tax bill even more.
Can I pay estimated taxes all at once?
Technically, yes. You can pay all of your quarterly taxes for the upcoming year by the first quarterly deadline of the year in April. But it might not be an accurate amount if you don't know exactly how much you'll make for the rest of the year—and that could lead to an underpayment penalty. Waiting to pay until the end of the year could also result in an underpayment penalty—because you'll have missed earlier quarterly deadlines to pay—plus interest charges. Instead of trying to make 1 lump sum payment, it's recommended to make estimated payments by the quarterly due dates.