Understanding Your Quarterly Tax Payments

Are you self-employed, a freelancer, or earning income not subject to regular paycheck withholding? If so, you likely need to pay estimated taxes to the IRS throughout the year. The IRS operates on a “pay-as-you-go” system, meaning taxes should be paid as you earn income, not just at the end of the year.

This guide will simplify who needs to pay, when to pay, and how to figure out your payments for the current tax year.

Do You Need to Pay Quarterly Taxes?

You generally need to make quarterly estimated tax payments for the current tax year if you expect to owe at least $1,000 in tax for the year.

This typically applies to:

• Self-employed individuals (freelancers, independent contractors, small business owners).
• Anyone with significant rental income, investment income (like interest or dividends), or other income not subject to withholding.

When Are Quarterly Payments Due?

Mark these important dates on your calendar! If a due date falls on a weekend or holiday, the deadline shifts to the next business day.

Quarter	Income Period	Due Date
Q1	Jan 1 – Mar 31	April 15
Q1	Apr 1 – May 31	June 15
Q3	June 1 – Aug 31	September 15
Q4	Sep 1 – Dec 31	January 15 (following year)

How Do You Figure Out How Much to Pay?

The goal is to estimate your total tax for the current year and pay it in four equal installments. The easiest way to do this is to use your previous year’s tax return as a guide.

Here’s a simplified approach:

1. Look at Your Previous Year’s Tax Return: Find your total tax from your previous year’s tax return (Form 1040, line 24, or equivalent line for your filing year).
2. Adjust for Current Year Changes:
   • Do you expect your income to be significantly different in the current year? (e.g., more or less self-employment income, new investment income).
   • Do you expect major changes in your deductions or credits? (e.g., a new baby, major medical expenses, significant business expenses).
3. Project Your Current Year’s Tax:
   • If your income and deductions are similar to the previous year, aim to pay 100% of your previous year’s tax liability in the current year. (If your previous year’s AGI was over $150,000, aim for 110%).
   • If your income will be higher in the current year, you’ll need to increase your payments. Consider using 90% of your expected current year’s tax liability.
   • The IRS provides Form 1040-ES, Estimated Tax for Individuals, which includes a worksheet that can help you project your income, deductions, and credits more precisely for the current year. We recommend using it!
4. Divide by Four: Once you have your estimated total annual tax for the current year, divide that amount by four. This is your payment for each quarter.

Example: If your total tax liability for last year was $12,000, and you expect similar income for the current year, you would aim to pay $3,000 ($12,000 / 4) by each quarterly due date.

Don’t Forget State Estimated Taxes!

While this guide focuses on federal estimated taxes, many states also require quarterly estimated tax payments. These payments are separate from federal payments and have their own rules and due dates.

Here are the typical state estimated tax due dates. Please note: These are common dates, but always verify with your specific state’s tax agency for the most accurate and up-to-date information, as some states may have different schedules or requirements.

Quarter	Income Period	Due Date
Q1	Jan 1 – Mar 31	April 15
Q1	Apr 1 – May 31	June 15
Q3	June 1 – Aug 31	September 15
Q4	Sep 1 – Dec 31	January 15 (following year)

Always check your specific state’s tax agency website for precise due dates and payment instructions.

Jurisdiction	Dept. of Revenue	Individual Payments	Business Payments

How to Pay Your Estimated Taxes: Step-by-Step

Once you’ve calculated your quarterly payment amount, here’s how to submit it to the IRS:

1. Choose Your Payment Method:
   • IRS Direct Pay (Recommended): This is the fastest and easiest way to pay directly from your checking or savings account. No fees, no registration needed. Simply visit the official IRS Direct Pay website.
   • Electronic Federal Tax Payment System (EFTPS): A secure and convenient way to pay all federal taxes. You’ll need to enroll first. Visit the EFTPS website.
   • Debit/Credit Card or Digital Wallet: You can pay through approved third-party processors. Note that these services typically charge a processing fee. Find approved processors on the IRS website.
   • Mail: If you prefer to pay by check or money order, you’ll need to use a payment voucher. Fill out and detach the appropriate voucher from Form 1040-ES and mail it with your payment to the address specified in the form’s instructions.
   • IRS2Go App: The official mobile app from the IRS allows you to make payments via IRS Direct Pay.
2. Enter Payment Details: Follow the instructions for your chosen method. You’ll generally need to provide:
   • The current tax year
   • Payment type (Estimated Tax)
   • Your Social Security Number (SSN) or Employer Identification Number (EIN)
   • The payment amount
   • Your bank account information (for direct debits) or card details (for card payments)
3. Confirm and Save Record: Always confirm your payment details before submitting. Once processed, save any confirmation numbers or receipts for your records. This is your proof of payment.

What if Your Income Changes?

Life happens, and income can fluctuate! If your income or deductions change significantly during the year, simply recalculate your estimated tax and adjust your future quarterly payments. You don’t have to pay the same amount each quarter if your situation changes.

The IRS Publication 505, Tax Withholding and Estimated Tax provides an “annualized income method” if your income varies greatly throughout the year.

Avoiding Penalties

The IRS can charge a penalty if you don’t pay enough tax throughout the year or don’t pay on time. To avoid this, make sure you pay at least:

• 90% of your current year’s tax liability, OR
• 100% of your previous year’s tax liability (110% if your previous year’s AGI was over $150,000).

Our Simple Advice:

• Stay Informed: Tax laws and figures (like standard deductions, tax brackets, and Social Security wage bases) are updated annually. Always refer to the most recent IRS publications for the current tax year’s specific numbers when making your final calculations.
• Set Money Aside: As soon as you get paid, put aside a percentage (e.g., 25-35%) of your income specifically for taxes.
• Keep Records: Track all your income and expenses throughout the year. This makes estimating much easier. Check out our article on Bookkeeping for Small Business Owners for more tips.
• Don’t Guess: Use your prior year’s tax return and the IRS Form 1040-ES worksheet as your guide.
• When in Doubt, Ask! If you’re unsure or your financial situation is complex, working with a tax professional like a CPA can help ensure you’re paying correctly and avoid surprises. Learn more about Working with a CPA.

Tax Professional Option – The amount you owe will depend on several things like tax deductions, tax credits, marriage status, number of dependents and several other variables. If you want a precise calculation, contact me.