What You Should Know About Estimated Tax Payments

Estimated tax payments are periodic tax payments individuals and businesses make to the IRS throughout the year, typically when they don’t have sufficient taxes withheld from income sources like self-employment earnings, investments or rental income. These payments are meant to cover your expected tax liability and help you avoid penalties for underpayment. Understanding when and how to make estimated tax payments is particularly relevant for freelancers, independent contractors, and those with irregular income streams.

For help calculating your estimated taxes and making sure you don’t make any costly mistakes, consider working with a financial advisor.

Estimated Taxes Defined

Estimated tax is the amount you’re responsible for paying on earnings that aren’t subject to withholding. This includes income from dividends, awards, rent and self-employment. Anyone who’s receiving money from a pension or salary that’s subject to withholding may also owe estimated tax if they haven’t paid enough income taxes.

Who Pays Estimated Taxes?

Generally, you’re responsible for paying estimated tax if you’re self-employed or own a business as a sole proprietor, partner or an S corporation shareholder. If you file taxes as a corporation, the IRS requires you to make estimated payments if you expect to pay $500 or more in taxes at the end of the year. The threshold goes up to $1,000 if you file as a sole proprietor or partnership.

Estimated Taxes: Calculating What You Owe

Figuring out what you’re going to owe in estimated taxes can be tricky if it’s your first time paying them. If you’re self-employed, you’re not only paying federal income tax but you’ll also owe a self-employment tax, which is currently set at 15.3%. Self-employment tax covers the taxes you’d normally have withheld for Social Security (12.4%) and Medicare (2.9%).

You’ll also need to add up your deductions, which reduce your taxable income. From there you can factor in any credits you qualify for. If you’re not sure where to get started, the IRS offers a worksheet to help guide you through the calculations.

Estimated Taxes: Making Quarterly Payments

Normally, if you owe income taxes you have to pay by the April filing deadline (in 2025, the filing deadline is April 15) to avoid a penalty. But that’s not the case with estimated taxes. These are due four times during the year: in April, June, September and January.

The IRS notes that if a quarterly due date falls on a Saturday, Sunday or legal holiday, the payment can be made the next day that isn’t a Saturday, Sunday or legal holiday. For example, the second round of quarterly taxes are typically due June 15. However, that date falls on a Sunday in 2025. As a result, second-quarter taxes will be due the following Monday – June 16, 2025.

If you don’t pay enough tax by the due dates, you may get hit with a penalty when you file your taxes by the deadline even if you’re owed a refund. To avoid the penalty, you have to owe less than $1,000 in tax. Or you can pay 90% of what you owe for the current tax year or show that you paid everything you owed for the previous year (whichever amount is smallest).

Don’t Forget About State Taxes

When you’re running the numbers on your federal quarterly taxes, you also have to add in what you must pay to your state tax agency. The due dates for state-estimated taxes are the same as the dates for federal taxes. Depending on where you live, you may be penalized for underpaying taxes or missing the due date on state income taxes.

Bottom Line

If you work at a company that takes payroll taxes and you don’t have any other major sources of income, you likely don’t need to worry about estimated taxes. If you are self-employed or have other major sources of income, though, you’ll have to estimate your own payments and make them quarterly.

Tax Tips

• A financial advisor with tax expertise can help you manage your taxes and potentially limit your tax liability. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Want to see how much you might owe this year? Use SmartAsset’s free tax calculator.

Photo credit: ©iStock.com/tmarvin, ©iStock.com/Squaredpixels, ©iStock.com/Ximagination