Guide to Estimated Tax Payments: When, How Much, and How to Pay

Who Must Pay Estimated Taxes?

You must make estimated tax payments if you expect to owe $1,000 or more in taxes after subtracting withholding and credits. This typically applies to:

Self-employed individuals and freelancers

Partners and S-Corp shareholders

Landlords with rental income

Investors with significant capital gains

Retirees with pension or IRA income not subject to withholding

Employees generally do not need to make estimated payments if their employer withholds sufficient taxes.

Payment Deadlines

If a due date falls on a weekend or holiday, the deadline shifts to the next business day.

How to Calculate

Safe Harbor Method

Pay at least the lesser of:

90% of your current year's tax liability, or

100% of last year's tax liability (110% if your AGI was above $150,000)

The safe harbor method is simpler because you base payments on known numbers from last year.

Current Year Method

Estimate your current year's income, deductions, and credits, then calculate 90% of the expected tax. Divide by four for equal quarterly payments or use the annualized method for uneven income.

Payment Methods

IRS Direct Pay (directpay.irs.gov) - free bank transfer

EFTPS (Electronic Federal Tax Payment System) - free, requires enrollment

IRS2Go app - mobile payment

Credit or debit card - processing fees apply (1.85-1.98% for credit)

Check or money order - mail with Form 1040-ES voucher

Underpayment Penalties

The penalty rate fluctuates with federal short-term rates, currently approximately 8% annually. The penalty is calculated on a daily basis for each quarter you underpaid.

Exceptions to Penalties

No penalty applies if:

You owe less than $1,000 after withholding

You paid at least 90% of this year's tax or 100% of last year's (110% for high earners)

The underpayment was due to casualty, disaster, or other unusual circumstance

Tips for Managing Estimated Payments

Set aside 25-30% of each payment you receive for taxes

Use a separate savings account dedicated to tax payments

Increase W-2 withholding if you also have a day job to cover some of the liability

Recalculate quarterly as income changes throughout the year

Use Taxation.ai to automatically calculate and remind you of quarterly payment amounts