You need to pay quarterly estimated taxes if you have income that isn’t subject to withholding and you expect to owe $1,000 or more in taxes when you file your return. Understanding who needs to make these payments and how to calculate them correctly helps avoid underpayment penalties while preventing overpayment.
Who typically needs to pay quarterly estimated taxes:
- Self-employed individuals: Freelancers, gig workers, independent contractors, and business owners
- Investors: Those with substantial investment income (dividends, capital gains, interest) not covered by withholding
- Rental property owners: Individuals earning significant rental income
- Retirees: Some retirees with income sources that don’t withhold taxes (certain pensions, investments)
- People with side income: Those earning substantial money beyond their W-2 job
Who typically doesn’t need to pay quarterly taxes:
- Individuals whose tax withholding from W-2 employment will cover at least 90% of their tax liability
- Those who will owe less than $1,000 in total tax when filing their return
- Individuals who had no tax liability in the previous year (must be a U.S. citizen or resident for the full year)
- Those who increase their W-2 withholding to cover additional income tax obligations
How to determine if you need to pay estimated taxes:
- Estimate your total income for the current year from all sources
- Estimate your deductions and credits to calculate expected taxable income
- Calculate your expected tax liability using current tax brackets and rates
- Subtract any withholding you expect from W-2 employment or other sources
- If the difference exceeds $1,000, you generally need to make estimated tax payments
Safe harbor rules to avoid penalties:
You can avoid underpayment penalties by meeting one of these safe harbor requirements:
- Pay at least 90% of your current year’s tax liability through withholding and estimated payments
- Pay at least 100% of your prior year’s tax liability (110% if your AGI was over $150,000)
- The IRS waives penalties if you didn’t make estimated payments because of casualty, disaster, or other unusual circumstances
How to calculate your quarterly payments:
- Equal payments method: Divide your estimated annual tax liability (minus withholding) by 4
- Annualized income method: Calculate based on income received during each period (useful for seasonal or irregular income)
- Tools available: Use Form 1040-ES worksheet or tax preparation software with estimated tax calculators
Quarterly estimated tax payment due dates:
- First quarter: April 15 (for income received January 1 – March 31)
- Second quarter: June 15 (for income received April 1 – May 31)
- Third quarter: September 15 (for income received June 1 – August 31)
- Fourth quarter: January 15 of the following year (for income received September 1 – December 31)
Payment methods available:
- IRS Direct Pay (free online payment from checking/savings account)
- Electronic Federal Tax Payment System (EFTPS)
- Credit or debit card payments (service fee applies)
- Mail Form 1040-ES with check or money order
- IRS2Go mobile app payments
If you’re unsure about your estimated tax obligations, consulting with a tax professional can help determine your specific requirements and optimize your payment strategy to avoid both penalties and overpayment.