When you work for an employer, income tax is withheld from every paycheck. When you work for yourself, nobody does that for you. The U.S. tax system is pay-as-you-go, which means the IRS expects to receive tax throughout the year as you earn income, not in one lump sum in April. For freelancers, independent contractors, small business owners, landlords, and investors, that usually means making quarterly estimated taxes. This guide explains who needs to pay, when payments are due, how to figure the amounts, and how to avoid the underpayment penalty.
*This article is for general information only and is not tax advice. Confirm details with the IRS or a qualified tax professional for your situation.*
Who needs to pay quarterly estimated taxes
According to the IRS, individuals generally must make estimated tax payments if they expect to owe at least $1,000 in federal tax for the year after subtracting withholding and refundable credits, and their withholding and credits will be less than the smaller of:
- 90% of the tax shown on the current year’s return, or
- 100% of the tax shown on the prior year’s return (if that return covered a full 12 months).
People who commonly fall into this group include:
- Freelancers, gig workers, and independent contractors paid on Form 1099-NEC or through payment apps.
- Sole proprietors, partners, and S corporation shareholders.
- Landlords with rental profits.
- Investors with significant interest, dividends, or capital gains.
- Retirees whose pension, IRA withdrawals, or Social Security lack enough withholding.
- Employees with large side income or prizes on top of their wages.
If you had no tax liability for the prior full year and were a U.S. citizen or resident all year, you generally do not have to pay estimated tax for the current year.
The four due dates
Despite the name, the quarters are not equal three-month periods. Estimated payments for a tax year are generally due:
| Payment | Covers income earned | Due date |
|---|---|---|
| 1st | January 1 to March 31 | April 15 |
| 2nd | April 1 to May 31 | June 15 |
| 3rd | June 1 to August 31 | September 15 |
| 4th | September 1 to December 31 | January 15 of the following year |
When a due date falls on a weekend or legal holiday, the deadline moves to the next business day. You can skip the January payment if you file your return and pay the full balance by the end of January, though most people simply make the fourth payment.
What the payments cover
Estimated payments cover all of your federal tax not otherwise withheld, including:
- Income tax on your business profit and other income.
- Self-employment tax, which is how self-employed people pay Social Security and Medicare. The rate is 15.3% on net earnings from self-employment: 12.4% for Social Security up to the annual wage base and 2.9% for Medicare with no cap. An additional 0.9% Medicare tax applies above certain income levels.
- Other taxes, such as the net investment income tax for higher earners.
Self-employment tax surprises many first-time freelancers. On top of income tax, it can take a large share of profit. Half of self-employment tax is deductible as an adjustment to income, which lowers your income tax somewhat.
Safe harbor rules: how to avoid the penalty
The underpayment penalty works like interest charged on the amount you underpaid for each quarter, for the time it was late. You can avoid it by meeting a safe harbor. In general, you will not owe a penalty if your total withholding and timely estimated payments equal at least the smaller of:
- 90% of your current-year tax, or
- 100% of your prior-year tax.
If your prior-year adjusted gross income was more than $150,000 ($75,000 if married filing separately), the prior-year safe harbor rises to 110% of last year’s tax.
The prior-year method is popular because it is predictable. You know last year’s tax, so you can divide the required amount by four and pay that each quarter, even if your income jumps this year. You would still owe the balance when you file, but without a penalty.
How to calculate your payments
Method 1: Prior-year safe harbor
- Find the total tax on last year’s return (Form 1040, total tax line).
- Multiply by 100%, or 110% if last year’s AGI exceeded $150,000.
- Subtract any withholding you expect this year, for example from a spouse’s job.
- Divide the remainder by four.
For example, if last year’s total tax was $12,000, your AGI was under $150,000, and you have no withholding, paying $3,000 per quarter on time meets the safe harbor.
Method 2: Current-year estimate
If your income is falling this year, paying based on the current year may mean smaller payments. Form 1040-ES includes a worksheet that walks through:
- Estimating your adjusted gross income, including business profit after expenses.
- Subtracting the standard deduction or itemized deductions and any qualified business income deduction.
- Calculating income tax using the current year’s brackets.
- Adding self-employment tax and other taxes.
- Subtracting expected credits and withholding.
- Paying at least 90% of the result over four installments.
Method 3: Annualized income
If your income is uneven, such as a large contract late in the year, the annualized income installment method lets you match payments to when income was actually earned. You claim it on Form 2210 with your return. It requires more recordkeeping but can eliminate penalties for early quarters when you earned little.
How to pay
The IRS offers several ways to pay estimated taxes:
- IRS Direct Pay from a checking or savings account, with no fee.
- Your IRS Online Account, where you can also see payments you have already made.
- Electronic Federal Tax Payment System (EFTPS), which allows scheduling payments in advance.
- Debit or credit card through approved processors, which charge a fee.
- Check or money order mailed with a Form 1040-ES voucher.
Whatever method you use, select the correct tax year and “estimated tax” as the payment type, and keep confirmation numbers.
Most states with an income tax have their own estimated tax system with similar deadlines. Check your state revenue department’s rules separately.
Practical habits for the self-employed
- Set aside a percentage of every payment you receive. Moving a fixed share of each invoice into a separate savings account means the money is there when the deadline arrives. The right percentage depends on your bracket, state, and deductions.
- Track business expenses all year. Deductible expenses reduce both income tax and self-employment tax.
- Revisit your estimate midyear. If income is running far above or below your plan, adjust the remaining payments.
- Use withholding if you also have a W-2 job. Increasing withholding on Form W-4 can cover side income. Withholding is treated as paid evenly through the year, even if you increase it late in the year.
- Calendar the dates. The June and September deadlines are the easiest to forget because they do not line up with calendar quarters.
- Contribute to a retirement plan. A SEP IRA or solo 401(k) can reduce taxable income while building savings.
What happens if you miss a payment
If you miss a payment, make it as soon as possible. The penalty is calculated based on how much was underpaid and for how long, using the IRS underpayment interest rate, so paying late is better than not paying until April. The IRS may waive the penalty in limited cases, such as a casualty or disaster, or if you retired after age 62 or became disabled during the year and the underpayment was due to reasonable cause.
Related reading: No Tax on Tips Deduction: Who Qualifies and How to Claim It.
Frequently Asked Questions
Do I have to pay estimated taxes in my first year of freelancing?
If you had no tax liability for the prior full year, you generally are not required to pay estimated tax in the current year to avoid the penalty. However, you will still owe all of this year’s tax when you file, so saving for it is wise.
What is the minimum amount that triggers estimated taxes?
Generally, you need to pay if you expect to owe $1,000 or more after withholding and refundable credits.
Can I make one large payment instead of four?
You can, but a single payment late in the year may not prevent penalties for earlier quarters. Each installment is measured separately unless you use the annualized method.
What form do I use for estimated taxes?
Form 1040-ES contains the worksheet and payment vouchers. The underpayment penalty is figured on Form 2210.
Are estimated payments due if I have a W-2 job too?
Only if your withholding will not cover enough of your total tax. Many people with modest side income simply increase their paycheck withholding instead.
Do I pay state estimated taxes too?
Most states with an income tax require estimated payments on similar schedules. Check your state’s revenue department.
The bottom line
Quarterly estimated taxes are the self-employed version of paycheck withholding. Know the four dates, choose a method, and aim for the safe harbor of 100% of last year’s tax (110% for higher earners) or 90% of this year’s. Setting aside money from every payment you receive makes the deadlines routine instead of stressful.
This article is for general informational purposes only and is not legal, medical, tax, or financial advice. Rules vary by state and change over time; confirm details with the relevant agency or a licensed professional.
