Estimated Tax Payments

The US income tax system is a “pay as you go” system where your income tax generally has to be paid throughout the year, not just when you file your tax return. Most people are unaware of that because most people have a W-2 job that withholds part of their paycheck throughout the year, and then the employer makes monthly or quarterly payments of that tax withholding to the government. But if you have substantial income that is coming from other sources, such as self-employment, business, or investment income, you probably will need to make estimated tax payments each quarter (four times during the year).

How to Calculate How Much to Pay

If your income is substantially the same from year to year, you can use your previous year’s tax amount as a starting point for estimating your taxes for the next year. You can also use an online tax calculator such as this one from TaxAct to get a rough estimate for how much you may owe in taxes based on your income for the year.

The IRS does simplify things by giving you some safe harbors where they won’t charge you an underpayment penalty in these situations:

  • If the amount of tax you underpaid is less than $1000, or if you paid at least 90% of the total taxes that you owe (including tax withholding from a W-2 job).
  • If you paid at least 110% of the amount of your total tax on your previous year return. Or if your AGI (adjusted gross income) for the year is under $150,000 (or $75,000 if married filing separately), then it’s only 100% of the total tax on your previous year return.

That second point is an important one because that exception is the easiest way to ensure that you’re paying enough in estimated taxes even if you’re unsure how much tax you’ll owe for the year. As long as your estimated tax payments (plus any W-2 tax withholding) is at least that percent (110% or 100%) of your previous year’s taxes, then you won’t owe an estimated tax payment penalty.

How to Make Estimated Tax Payments

Quarterly estimated tax payments are due April 15th, June 15th, September 15th, and January 15th. The actual dates may be slightly later some tax years due to weekends and holidays, but it’s simplest just to pay by these dates.

There are several ways you can make your estimated tax payments. These are a few of the best options to use:

  • From your IRS account page on the IRS website. This is an easy option to use if you already have an IRS account. You can view your payment history, and make a new payment from a bank account (for free) or credit card (for an extra fee).
  • If you don’t have an IRS account login, and you don’t want to create one, or you are having difficulties creating an account, you may want to pay with IRS Direct Pay instead since that service doesn’t require a login account.
  • You can also pay with EFTPS instead. You’ll need to use EFTPS if you’re making a payment of tax for a business that isn’t related to a 1040 personal tax return, such as a C corporation tax return.
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David Orr

I am a credentialed tax professional with a primary focus on tax preparation and advising for real estate investors. Have tax questions or want me to do your taxes? Contact us.

This article was written or updated in 2023 or 2024 and is current for the 2023 and 2024 tax years.

The information presented here is meant for guidance purposes only, and not as personal legal or tax advice.