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Quarterly Estimated Tax Payments: Who Needs to Pay Them, When, and Why

If you own a business or earn money as a freelancer, you’ll need to make estimated tax payments every quarter to avoid penalties and interest. Here’s how.


Finding out you owe federal income taxes at filing time is no fun, but did you know that the IRS can charge you interest and penalties if you don’t properly estimate (and pay) your taxes on at least a quarterly basis?

If you’re self-employed or earn additional income from a side hustle that does not withhold federal income taxes (i.e., you receive 1099 forms), you may have to make quarterly estimated tax payments.

Who Must Make Quarterly Estimated Tax Payments?

The IRS explains, in excruciating detail, how to determine whether you’ll need to make estimated tax payments in Publication 505. Put simply, however, you will generally need to make estimated tax payments if you expect to owe the IRS $1,000 or more in taxes when you file your tax return.

If you are self-employed, you will have to send the IRS between 22.5 percent and 28 percent of your gross income four times a year to cover your income tax and social security tax obligations. If you are employed full-time but earn additional income from sources that do not withhold income taxes from your pay (and issue you form 1099), things get a little tricky.

Chances are, if owed taxes last year or had only a small refund and you are earning more than $1,000 from sources that do not withhold income taxes, you will need to make estimated payments.

When Are Estimated Payments Due?

Estimated payments are due four times a year. You must pay the IRS the appropriate percentage of your earnings from which taxes were not withheld by the payment deadline.

  • For income earned Jan. 1—March 31, pay by April 15
  • For income earned April 1—May 31, pay by June 15
  • For income earned June 1—August 31, pay by September 15
  • For income earned Sept. 1—Dec. 31, pay by January 15

Note that if the due date falls on a Saturday or Sunday, you have until the following Monday to pay.

Why Are Estimated Payments Due?

Employees on a payroll have their federal income taxes automatically deducted every pay period based upon the information they provided on their W-4 form. The employees’ company or payroll vendor collects this money and sends it off to Uncle Sam on a regular basis to keep the wheels of government turning.

But when you become self-employed, or earn enough money on the side, you get paid by sources that that do not withhold taxes from your check. So why can’t you just earn income all year and not pay the IRS until you file your tax return the following April? Basically, the IRS wants its money now. After all, if somebody owed you money, would you rather be paid now, or in several months? Exactly.

The IRS expects the self-employed to pay federal taxes on a rolling basis just like everybody else. Those who don’t pay up by the quarterly payment dates will face an annual 8% in interest on the unpaid tax liability for every day the payment is late.

Need help with your tax return? Check out our comparison of leading tax filing software here. 

Do you have to make estimated tax payments? Have you been hit with interest or penalties for mistakenly missing quarterly payments?

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. Thanks for the good info. I’m thinking of starting a small business so I’ll probably need to make quarterly estimated tax payments once I get started.

  2. I’ve been self-employed for 5 years now, and I never remember to send in my quarterly estimated tax. Last year I sent in the first one but not the following three, but my accountant forgot I told him that and had to redo them…so I know that the difference in penalties and interest between making the first payment on time and no others v. no payments at all: $29 v. $79.

  3. There are some things that should be added or reworded.

    First, the Quarterly Estimates Due Dates are different year to year based on when the 15th falls on. For example, the first date in 2011 is due on April 18th instead of the 15th.

    Second, “annual 8% in interest on the unpaid tax liability for every day the payment is late..” should be reworded in my opinion.

  4. Hi,

    Well it depends on who you talk to? taxes are due the following year April 15 – so why pay quarterly when the total bill is due April 15th – make $$$ on your own $$$ why give it to them early?