How Can Estimated Taxes Be Paid?

If you earn income that isn’t subject to regular paycheck withholding, estimated taxes can quickly become a source of stress and confusion. Missing a payment or choosing the wrong method can lead to penalties, interest and an unpleasant surprise at tax time. Understanding how estimated taxes can be paid (and which options make the most sense for your situation) can help you stay compliant, avoid costly mistakes and manage your cash flow more confidently throughout the year.

Consider asking a financial advisor to walk through the process and help avoid penalties.

Estimated Tax Basics

You generally need to pay estimated taxes if you expect to owe at least $1,000 when you file your tax return. This includes income earned from self-employment, freelancing, side jobs, interest, dividends and capital gains. The IRS requires you to pay as you earn to ensure the government receives a steady stream of tax revenue, rather than getting a lump sum payment once a year.

It’s usually in your best interest to go along with this requirement. That’s because, if you don’t pay enough estimated taxes during the year, you may owe an underpayment penalty when you file your return. The IRS calculates underpayment penalties by charging interest on the amount underpaid. The interest rate it charges changes periodically, with the rate currently set at 8% annually.

Different Ways to Pay

While you have to pay, you have a few options for the way you make estimated tax payments:

Pay quarterly: Most taxpayers do this, sending in quarterly installments on April 15, June 15, September 15, and January 15. Each installment generally is equal to one-quarter of the total tax bill you expect. You can pay online, by phone, or by mail using Form 1040-ES.
Pay when filing: Instead of quarterly payments, you can pay your full estimated tax liability when you file your return by the April deadline. This increases your risk of penalties if you underpay, however.
Withhold from other income: If you have W-2 job income, you can increase your withholdings to cover estimated taxes on 1099 income.
Apply refund to balance: If you’re owed a refund, you can apply it to estimated taxes due instead of receiving a check.

Avoiding Underpayment Penalties

Estimating quarterly taxes to avoid underpayment penalties.

You can sidestep underpayment penalties even if you haven’t paid enough in estimated taxes to equal your total current tax bill. Do this by meeting one of the IRS safe harbor rules. For most taxpayers, this means paying estimated taxes equal to at least 90% of your current year tax liability or 100% of your prior year liability.

That is, if you owed $9,000 last year and have paid in $9,000 in estimated taxes for this year, you have met the safe harbor provision and won’t be subject to underpayment penalties, even if you owe more in taxes this year. You would also satisfy the safe harbor provisions if you paid $9,000 in estimated taxes this year and your current tax liability is no more than $10,000, since $9,000 is equal to 90% of $10,000.

Higher-income taxpayers have a different standard. If adjusted gross income (AGI) exceeds $150,000, they must pay at least 110% of their prior year liability.

Estimated Tax Examples

Let’s take the example of a self-employed taxpayer who expects to earn $60,000 this year and wants to avoid underpayment penalties. To avoid underpayment penalties, they need to pay at least 90% of their expected 2026 tax liability.

Based on their income and deductions, they estimate their total tax liability to be $13,500. To meet the safe harbor rule, they must pay at least $12,150, which is 90% of $13,500. They choose to make quarterly payments of $3,037.50 each.

As another example, let’s take a look at a freelance graphic designer who expects to earn $80,000 this year and had a tax liability of $10,000 last year. To avoid underpayment penalties, they must pay either 100% of last year’s tax liability or 90% of their estimated 2026 tax liability, whichever is lower.

After reviewing their income and deductions, they estimate their 2026 tax liability to be $12,000. To meet the IRS safe harbor rule, they decide to pay 100% of last year’s tax liability, which is $10,000. They split this amount into four equal quarterly payments of $2,500 to stay on track with estimated tax deadlines.

Both examples show how each worker can avoid penalties while spreading payments throughout the year for easier budgeting. If they owe additional taxes when filing their return, they can pay the remaining balance by April 15.

Bottom Line

A taxpayer reviewing her estimated tax payments.

Estimated taxes don’t have to be overwhelming once you understand when and how they can be paid. Whether you choose to pay online, by mail or through automatic payments, staying organized and meeting IRS deadlines is key to avoiding penalties. For taxpayers with variable income or complex finances, planning ahead can make estimated payments more manageable and predictable.

Tax Planning Tips

Connect with a financial advisor who can analyze your situation and suggest a tax planning strategy. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Use SmartAsset’s income tax calculator to figure out how much estimated tax to pay.