Estimated Tax
Quarterly tax payments required from self-employed individuals and businesses that expect to owe $1,000 or more in taxes not covered by withholding.
Estimated tax is the system of periodic prepayments of income tax (and self-employment tax) required from taxpayers who receive income that isn't subject to withholding — including self-employment income, business profits, significant investment income, rental income, and other sources. The IRS and most states require these payments quarterly to collect taxes on a current-year basis rather than in a single lump sum at filing.
Federal estimated tax due dates for calendar-year taxpayers are: Q1 (January 1–March 31) due April 15; Q2 (April 1–May 31) due June 15; Q3 (June 1–August 31) due September 15; Q4 (September 1–December 31) due January 15 of the following year. Note that Q2 is only 2 months while other quarters are 3 months, a common source of confusion.
Taxpayers may owe an underpayment penalty if their total withholding and estimated payments fall short of the lesser of: 90% of the current year's tax liability, or 100% of the prior year's tax liability (110% if prior-year AGI exceeded $150,000). Meeting either safe harbor prevents the penalty regardless of how much is ultimately owed at filing.
Self-employed individuals must pay estimated tax on net self-employment income, including both the income tax component and the full 15.3% self-employment tax (covering both employer and employee shares of Social Security and Medicare). This can result in a surprisingly high estimated payment for freelancers and contractors.
Modern platforms like QuickBooks Self-Employed and Keeper Tax automatically track income and expenses, estimate quarterly tax payments, and remind users of due dates to reduce underpayment risk.
FAQs
Do I need to pay estimated taxes if I also have a W-2 job?
Possibly. If your W-2 withholding covers at least 90% of your total tax liability (including on side income), or 100% of your prior year's tax, you're in a safe harbor and won't owe an underpayment penalty. However, if you have significant freelance or investment income on top of your W-2, additional estimated payments may be needed.
What happens if I miss an estimated tax payment?
Missing or underpaying estimated taxes results in an underpayment penalty calculated as the federal short-term rate plus 3 percentage points, applied to the underpaid amount for each day it's late. The penalty is generally modest (often under $100 per quarter for typical situations) but adds up over the year.
Can I pay estimated taxes online?
Yes — IRS Direct Pay and EFTPS (Electronic Federal Tax Payment System) allow free online estimated tax payments. IRS Direct Pay is simpler for individuals; EFTPS is better for businesses and those making recurring payments. Many states also have online payment portals. You can also use the IRS2Go mobile app.
Related Terms
Tax Withholding
The process by which employers deduct income taxes from employees' paychecks and remit them directly to tax authorities on the employee's behalf.
1099 Contractor
A self-employed independent contractor who provides services to a business without being classified as an employee.
Payroll Tax
Taxes levied on wages and salaries, split between employee withholding and employer contributions, funding social programs like Social Security and Medicare.
R&D Tax Credit
A federal and state tax incentive allowing businesses to claim a credit for qualifying research and development expenditures.
