Estimated Tax Payments: When and How to Pay the IRS Quarterly

The US tax system is pay-as-you-go. Employees have taxes withheld from each paycheck. Self-employed individuals and business owners must make quarterly estimated tax payments instead.

Who needs to pay estimated taxes?

You generally must make estimated tax payments if:

• •You expect to owe $1,000 or more when you file your return, AND

• •You expect your withholding and credits to be less than the smaller of:

- 90% of the tax shown on your current year return, or

- 100% of the tax on your prior year return

Quarterly deadlines

• •Q1: April 15 (for income earned Jan 1 - Mar 31)
• •Q2: June 15 (for income earned Apr 1 - May 31)
• •Q3: September 15 (for income earned Jun 1 - Aug 31)
• •Q4: January 15 of next year (for income earned Sep 1 - Dec 31)

How to calculate

Method 1 — Annualized income. Estimate your annual income, calculate the tax, divide by 4.

Method 2 — Prior year safe harbor. Pay 100% of last year's tax liability divided by 4. This guarantees you won't owe an underpayment penalty, even if you earn more this year. (110% if your AGI exceeded $150,000.)

How to pay

• •IRS Direct Pay (irs.gov/payments) — free, from a bank account
• •EFTPS (Electronic Federal Tax Payment System) — free, requires enrollment
• •IRS2Go app — mobile payments
• •Credit/debit card — convenience fee applies

For foreign founders

If you receive guaranteed payments from a US partnership or have effectively connected income, you may owe estimated taxes as an individual on Form 1040-NR.

For foreign-owned LLCs taxed as corporations, the corporation itself may owe estimated tax payments if it expects to owe $500 or more.

Underpayment penalty

If you don't pay enough estimated tax, the IRS charges a penalty. It's essentially interest on the amount you should have paid. The rate changes quarterly and is currently around 7-8%.

Pro tip

Overpaying slightly in estimated taxes is better than underpaying. You'll get the excess back as a refund when you file. It's better to receive a small refund than to face an underpayment penalty.