What Are Estimated Taxes?
In plain English
Estimated taxes are advance payments of income tax made four times a year by taxpayers whose income — from self-employment, investments, rental properties, or other sources — is not subject to employer withholding. The IRS requires these payments to ensure taxes are paid as income is earned throughout the year rather than in one lump sum at filing.
Who Is Required to Make Estimated Tax Payments?
You generally must make estimated payments if you expect to owe at least $1,000 in federal tax after subtracting withholding and credits, and if withholding covers less than 90% of the current year's liability or 100% of the prior year's (110% for high earners). Common filers include freelancers, consultants, landlords, retirees with investment income, and business owners.
What Are the Estimated Tax Payment Due Dates?
The IRS schedules four estimated tax payment deadlines: April 15 for income earned January through March, June 15 for April through May income, September 15 for June through August income, and January 15 of the following year for September through December. If a deadline falls on a weekend or holiday, it shifts to the next business day.
What Happens If You Miss or Underpay Estimated Taxes?
The IRS charges an underpayment penalty calculated at the federal short-term interest rate plus 3%, applied quarterly on the shortfall. The penalty is avoided by meeting safe harbor thresholds — paying at least 90% of the current year's tax or 100% of last year's tax. Increasing withholding from any remaining wages or retirement distributions can substitute for estimated payments.
Frequently asked questions
How do I calculate how much to pay in estimated taxes?
Use IRS Form 1040-ES, which includes a worksheet to estimate annual income, deductions, and credits. Divide the estimated annual tax by four for equal quarterly payments, or calculate each quarter based on actual income earned to that point — useful when income is seasonal or variable.
Can I skip the last estimated payment if I plan to file early?
You can skip the January 15 fourth-quarter payment if you file your complete tax return and pay all tax owed by January 31. Otherwise, pay by January 15 to avoid the underpayment penalty for the fourth quarter.
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Related terms
Self-Employment Tax
Self-employment tax covers Social Security and Medicare contributions for self-employed individuals who do not have an employer withholding these taxes. The current combined rate is 15.3%.
Withholding
Withholding is the portion of your paycheck your employer sends directly to the IRS and state tax authorities on your behalf throughout the year. It serves as a pay-as-you-go mechanism for income taxes.
Tax Refund
A tax refund is money the IRS returns to you when your total tax payments — through withholding or estimated payments — exceed your actual tax liability for the year.
1099 Form
A 1099 form reports various types of non-employment income paid to individuals, including freelance earnings, dividends, and retirement distributions. Recipients use it to report income on their tax return.
Tax Filing Status
Your tax filing status determines your tax bracket thresholds, standard deduction amount, and eligibility for various credits and deductions. Choosing the correct status is one of the most impactful decisions in tax planning.