If you're self-employed, run a small business, or earn rental or investment income, quarterly estimated tax payments may be critical to your tax compliance. These payments cover both income tax and, if applicable, self-employment tax. Missing a payment or miscalculating what you owe can lead to penalties and interest, even if you're due a refund at tax time.
Who Needs to Make Estimated Tax Payments?
You're generally required to make quarterly payments if you expect to owe at least $1,000 in federal tax after subtracting withholding and refundable credits. This typically includes:
• Independent contractors, freelancers, and gig workers
• Sole proprietors and small business owners
• Partners in a partnership or S corporation shareholders
• Landlords with rental income
• Investors with significant capital gains or dividends
When Are Estimated Payments Due?
The IRS divides the year into four payment periods that don't align with calendar quarters. For 2025, the due dates are:
• April 15 (Q1)
• June 16 (Q2 – due to weekend extension)
• September 15 (Q3)
• January 15, 2026 (Q4)
If a due date falls on a weekend or holiday, it's extended to the next business day.
How to Calculate Estimated Taxes
Here's a simplified six-step process:
1. Estimate your total income for the year.
2. Subtract deductions (standard or itemized, business expenses, retirement contributions).
3. Apply federal income tax rates to determine your liability.
4. Add self-employment tax, if applicable (15.3% on net earnings up to $176,100 in 2025, 2.9% thereafter).
5. Subtract withholding and tax credits.
6. Divide the result by four to estimate each quarterly payment.
If your income is seasonal or irregular, you may qualify to use the annualized income installment method, which lets you adjust your payments to better match when income is actually earned.
What Happens If You Underpay?
The IRS may assess penalties if you:
• Miss a payment
• Underpay due to underestimating income
• Pay after the deadline
You can avoid penalties using the safe harbor rule by paying the lesser of:
• 90% of your current-year tax liability
• 100% of your prior year's tax liability (110% if your AGI was over $150,000 or $75,000 if married filing separately)
Practical Tips for Staying on Track
Set aside 25%–30% of net income in a dedicated savings account, with an optional 5%–10% buffer for income spikes.
Use accounting tools like QuickBooks, Xero, or FreshBooks to track income and tax estimates — but only if you enter accurate data.
Reassess income quarterly and adjust payments accordingly.
Automate payments via IRS Direct Pay or EFTPS to avoid missing deadlines.
What if You Also Have W-2 Income?
Earning both W-2 and non-W-2 income can increase your W-2 withholding to cover your estimated taxes. Submit an updated Form W-4 to your employer and use the IRS Tax Withholding Estimator to calculate how much to withhold.
Withholding is treated as if it were spread evenly throughout the year, even if it's increased later, so this strategy can help cover earlier shortfalls and avoid penalties.
Avoid Surprises and Penalties
Quarterly tax payments can be complex, especially with fluctuating income, evolving deductions, and tax law changes. A proactive approach — and the help of a trusted tax advisor — can help you stay compliant and avoid costly missteps.