A guide to your estimated taxes: what they are and when to pay them

For those who can’t withhold federal taxes from each paycheck, you have to make tax payments each quarter.

Derek Silva

Derek Silva

Published November 7, 2019

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KEY TAKEAWAYS

  • Estimated taxes are necessary for self-employed individuals, sole proprietors, partnerships, and S corporation shareholders

  • You need to make quarterly tax payments that cover your tax liability for the year

  • Always cover at least 90% of your liability to avoid penalties

Income tax in the United States works on a pay-as-you-go system and so the federal government collects income taxes throughout the year via payroll taxes. When you file your tax return — by the April deadline — ideally you have already paid all of your taxes. Most people overpay throughout the year, which is why they get a tax refund from the IRS. If you underpay, you will face a bill when you file your return.

However, not everyone has an employer to withhold taxes. Small-business owners, self-employed individuals, and workers who receive a 1099 instead of a W-2 still have to make tax payments throughout the year. They do so with quarterly estimated tax payments.

The basic process for paying estimated taxes is to calculate how much tax you will need to pay over the year (also known as your tax liability), divide that number by four to find your quarterly tax payments, and then make the payments on time. If your income varies throughout the year or if your expected income changes, you may need to recalculate each quarter. Come tax season, you still file a regular tax return.

In this article:

Who has to pay estimated taxes

You probably have to pay estimated taxes if you file as a self-employed individual, a sole proprietor, a partnership, or an S corporation shareholder. Freelancers, contractors, and others whose earnings are reported on a 1099 instead of a W-2 also need to pay estimated taxes.

In particular, you need to make estimated tax payments if you expect to owe $1,000 or more in taxes when you file your annual return. The same is true for corporations that expect to owe at least $500.

If you don’t know whether you’ll owe that much, you should calculate your tax liability to be sure. Not paying estimated taxes when you need to can result in penalties.

Who doesn’t need to pay estimated taxes

If all of your earnings are reported on a W-2, you don’t need to make estimated tax payments. Employers who issue a W-2 have withheld taxes for you throughout the year.

For employees with untaxed income outside of their job, it’s also possible to avoid estimated taxes by withholding more from their employer’s paychecks. They just need to take more allowances on their W-4 form. (A withholding calculator can help with this.) However, it may be safest for you to pay taxes on your own and directly with estimated taxes.

Taxpayers receiving a pension or annuity can use Form W-4P to change withholding from these payments. Certain government payments also qualify for voluntary withholding through Form W-4V.

You also don’t have to pay estimated taxes if you meet all of the following criteria:

  • You had no tax liability last year
  • Your last tax return covered a full calendar year (12 months)
  • You were a U.S. citizen for all of that year

Calculating your estimated taxes

For help calculating your estimated payments, individuals can use the Estimated Tax Worksheet from the IRS, which is in the instructions of Form 1040-ES. Corporations can find instructions on Form 1120-W.

Start with income tax

The basic process for finding your tax liability starts with your adjusted gross income (AGI). If you expect your income this year to be similar to last year, you can use the AGI on last year’s tax return as a starting point.

From your AGI, subtract either the standard deduction or the amount of your itemized deductions. The number you have after these deductions is your taxable income.

Once you know your taxable income, use the federal income tax brackets to find how much federal income tax you owe.

Add self-employment tax

Regular employees have money withheld from their paychecks to fund Social Security and Medicare. This is in addition to income tax payments. Self-employed workers, including contractors and freelancers, don’t have this withholding and so they pay the self-employment tax to make sure they pay into these programs.

When you calculate your estimated taxes, you also need to calculate self-employment tax if your net earnings from self-employment were at least $400 for the year.

To find your self-employment tax, take your total income and multiply it by 92.35%, because the federal government only applies the tax to 92.35% of your income. The result is basically the taxable income for the self-employment tax.

Then you need to apply the actual tax, which is 15.3% (12.4% for Social Security tax and 2.9% for Medicare tax).

Add your self-employment tax to your income tax and you have your total tax liability. Divide the total by four and you have your estimated quarterly tax. It’s common for people to pay in four equal amounts, but you will need to calculate your liability each quarter if you earn income unevenly throughout the year.

Other types of income to consider

In some cases, you may have other income sources. Just as with the self-employment tax, you need to factor them into your estimated tax payments.

For example, you may owe capital gains tax if you sold a house or stocks for a big profit. You may also have a big cash windfall, like the lump-sum payment from a 401(k).

Remember that not all income is subject to income tax, though. Some examples of non-taxable income include welfare payments, workers’ compensation, child support, certain veteran’s benefits, gifts, inheritances, and a life insurance death benefit.

As mentioned earlier, employees who receive a W-2 can also adjust their withholdings (on their W-4 forms) to avoid estimated taxes. This is useful if you receive a one-time influx of cash, such as from a will. The key is to make sure you cover at least 90% of your tax liability so you avoid penalties and a bill on Tax Day.

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How to pay your estimated taxes

Individuals who file estimated taxes will need to fill out Form 1040-ES. Corporations need to file Form 1120-W.

The easiest and safest way to pay your taxes is electronically. IRS Direct Pay allows you to make payments directly to the IRS. You can transfer money from a bank account and you can also pay with a credit or debit card. The IRS mobile app, IRS2Go, allows electronic payments.

If you use a tax-filing service, such as TurboTax, it’s possible to calculate and pay your estimated taxes through them. This simplifies the process, but these services usually charge a higher fee to include estimated taxes.

You can also pay your estimated taxes over the phone, with a wire transfer, check, money order, or cash through one of the IRS’ retail partners. If you pay cash, you are limited to a transfer of $1,000 per day and you need to preregister online with the IRS.

When you mail in a payment, make sure to include a payment voucher from Form 1040-ES. The voucher is just a slip of paper with your personal information so the IRS knows who is making the payment.

For businesses and those with large payments, it’s best to use the Electronic Federal Tax Payment System (EFTPS). The EFTPS a free tax payment service from the U.S. Department of the Treasury. You need to enroll in the program, which takes a few days, so make sure to give yourself time.

More information on payments is available in the instructions of Form 1040-ES and through the IRS’ website.

Paying joint estimated taxes

In some cases, a married couple will owe joint estimated taxes. For example, you may have capital gains from selling a house that you each own half of. If you plan to file a joint return during tax season, you can also pay joint estimated taxes. Send a single payment voucher with both of your names and Social Security numbers, in the same order you will write them on your tax return.

You should not pay together if you plan to file separate returns during tax season. You also cannot pay jointly if you are divorced, you or your spouse is a nonresident alien, or if you and your spouse have different tax years (your returns cover different 12-month periods).

In community property states, property is jointly owned by spouses and any capital gains resulting in estimated taxes are probably split between the two of you. If you’re unsure about the ownership of your property, you may want to talk with an attorney.

Note that if you are in a registered domestic partnership, civil union, or other formal relationship that isn’t a marriage under state law, you cannot make joint estimated tax payments.

When you make estimated tax payments

Estimated taxes are due quarterly. Due dates are normally on the 15th day of April, June, September, and January of the next year. If the 15th falls on a weekend or a legal holiday, the due date is the next business day.

You can find due dates for 2019 estimated taxes in the table below.

Payment periodDue date
September 1, 2019 to December 31, 2019January 15, 2020
January 1, 2020 to March 31, 2020April 15, 2020
April 1, 2020 to May 31, 2020June 17, 2020
June 1, 2020 to August 31, 2020September 16, 2020
September 1, 2020 to December 31, 2020January 15, 2021

Due dates for farmers and fishermen

If you earn at least two-thirds of your gross income from farming or fishing, you do not have to make payments by the dates above. You can if you’d like, but it isn’t necessary. Instead, you should do either of the following:

  • Pay all of your estimated tax for the 2019 tax year by January 15, 2020
  • File your 2019 Form 1040 by March 2, 2020, and pay the total tax due

Fiscal year taxpayers

If you operate on a fiscal year that differs from the calendar year, your due dates depend on your fiscal year. Make payments on the 15th day of the fourth, sixth, and ninth months of your current fiscal year, as well as the first month of the following fiscal year. Again, use the next business day if the 15th falls on a weekend or a legal holiday.

Taxpayers operating on a different fiscal year should consider working with a tax preparer or accountant to ensure they meet the proper deadlines.

Can you make more than four payments?

Yes, you can make as many payments as you want and you can send them any time during the quarter. Making extra payments is necessary if you underpaid for a quarter and are paying extra to make up the difference. This may happen if you earn more in a quarter than you expected.

No matter how many payments you make, the important thing is that you have paid the proper amount before the quarterly due date. If you underpay, the IRS will charge you a penalty.

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Penalties for missing your tax payments

If you don’t pay enough or if you miss a due date, you will pay a penalty to the IRS. The penalty amount depends on how late you paid and how much you underpaid.

There are a couple of ways to make sure you avoid paying penalties:

  • Always pay at least 90% of your tax liability
  • Pay 100% of last year’s liability (the safe harbor rule)

The basic rule for avoiding a penalty is that you need to pay at least 90% of your tax liability for the quarter or year. As long as you do that, you will never face a penalty for underpayment.

There is one major exception to this rule. Farmers and fishermen who earn at least two-thirds of their gross income from farming or fishing only need to meet 66 2/3% of their tax liability.

The safest way to avoid any penalties is by paying 100% of your tax liability from last year. This is sometimes called the safe harbor rule.

There are a couple of exceptions to this rule, though. If your AGI was at least $150,000 last year (or $75,000 if your filing status for the upcoming year is married filing separately), then you need to pay 110% of last year’s liability to meet the safe harbor rule. This rule also doesn’t apply to farmers or fishermen.

State estimated taxes

All of the information above is for your federal income taxes. If your state or city also collects income tax, you probably have to pay estimated state taxes. In many cases, the process and due dates are the same as mentioned above, except you make payments to your state or local government. For more information on local rules, visit your state’s website.

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If you die with your taxes unpaid, your spouse may have to pay them out of pocket.

Life insurance can help pay off your unpaid taxes instead.