Every year, millions of freelancers, gig workers, and corporations pay estimated taxes every quarter for income they've earned that isn't automatically subject to withholding taxes. By doing so, these people and organizations stay on top of tax payments throughout the year—and avoid the costly penalties and interest payments that come along with underpaying.
Generally, estimated quarterly taxes are due in April, June, September, and January of the following year, and taking the time to make these payments as accurately as possible can save time, money, and no small amount of stress for individuals and businesses alike.
Below, we'll cover not only when estimated tax payments are due but also which types of people and organizations need to pay them, how to calculate them, and what to expect if you underpay.
When to pay estimated taxes for 2024
Every year, estimated tax payment deadlines fall on or around the 15th of April, June, September, and January, with small variations due to federal holidays and weekends. This year, quarterly deadlines fall on these dates:
1. April 15
Required payment deadline for any taxable income earned from Jan. 1 to March 31, 2024.
2. June 17
Required payment deadline for any taxable income earned from April 1 to May 31, 2024.
3. Sept. 16
Required payment deadline for any taxable income earned from June 1 to Aug. 31,2024.
4. Jan. 15
Required payment deadline for any taxable income earned from Sept. 1 to Dec. 31, 2024.
Who should make estimated quarterly tax payments?
As a general rule, estimated tax payments are generally required of anyone who earns income that isn't automatically subjected to withholding taxes. This includes, but is not limited to:
Self-employed individuals: All freelancers, contractors, business owners (including sole proprietors, members of a partnership, shareholders of S corporations), and other self-employed people who expect to owe $1,000 or more on their yearly tax return.
- Investors: Anyone who earns significant income from investments such as capital gains, dividends, or interest, especially if these investments increase tax liability.
- Retirees: Individuals who receive income from retirement accounts or pensions but do not have taxes withheld from those distributions.
- Gig economy workers: Even if they're technically employed by someone else, certain members of the gig economy (such as ride-share drivers or on-demand services) may need to pay quarterly taxes if they don't have taxes withheld by employers.
- Individuals with multiple income streams: This includes people with more than one job, especially if they do not fill out a W-4 form at each job or if they have significant non-wage income without withholding, such as rental income, interest, dividends, alimony, or lottery winnings.
- Corporations: All C corporations or S corporations that expect to owe more than $500 in taxes.
How to calculate quarterly estimated taxes
When you need to make estimated tax payments, it's important to be as accurate as possible when calculating how much to pay. Ideally, the total of your quarterly estimated taxes should equal at least 90% of what you owe by year's end or 100% of what you owed in the previous tax year (this increases to 110% for married couples making more than $150,000 per year or individuals making $75,000).
Fortunately, calculating payments only takes a few easy steps.
Estimate your annual income
This first step is one of the most important when trying to pay quarterly estimated taxes but it can be done in several ways. To begin, take your income taxes from the previous year to identify a baseline. Then, factor in any changes in workload, rates, or projects you expect to happen throughout the year.
By comparing last year's taxes to the amount you can reasonably expect to earn from the projects due during that quarter, you can land on a relatively accurate payment.
For those who make more or less at different times of the year, remember to consider such fluctuations when calculating income.
Calculate your expected adjusted gross income
Once you have your net income, deduct any business-related expenses you expect to pay, such as office supplies, internet bills, software, car mileage, or even a portion of your rent. Again, this is where a previous tax return can help, and maximizing deductions can dramatically lower the quarterly taxes you end up owing.
Find your tax liability
After you've established your expected adjusted gross income for the year, use the 2024 tax rate to determine your total tax liability. When doing so, remember that freelancers pay an extra income tax of 15.3% for Medicare and Social Security purposes.
Subtract credits and partial payments
If you expect to be owed any tax credits or to have some of your income subjected to withholding (such as with individuals who earn both W-2 income and 1099 income), make sure to deduct those amounts from your total tax liability for the year.
Divide by four
Now that you have your total yearly expected tax liability, simply divide by four to determine your quarterly payment amounts. For individuals with income sources subject to seasonality or other fluctuations throughout the year, you can change these payments individually to better match busy and slow periods.
Update throughout the year
Even the best estimates can be thrown for a loop by unexpected projects, new opportunities, or unusually slow seasons. When this happens, feel free to adjust and update your estimates to account for those changes. If you fail to do so, you may suffer an estimated tax penalty despite putting in all the effort to make accurate quarterly payments.
How to pay estimated taxes
While calculating your quarterly taxes may seem daunting, the actual process of making those payments is nearly identical to paying normal taxes—with a few key differences.
1040-ES vs. 1120-W
When it comes to paying quarterly taxes, the process is slightly different for individuals and companies. Specifically, individuals will need to obtain and complete Form 1040-ES, or "estimated tax for individuals." Companies, on the other hand, will need to obtain and complete Form 1120-W, which is similar in many ways but differs in the types of deductions available and guidance for calculating taxes in general.
Both forms can be found on the IRS website, at your local IRS office, through many types of tax software, from tax professionals, and potentially at your local post office or library (though you should call ahead to ask).
Payment methods
In recent years, the IRS has gone to great lengths to make it simpler for individuals to pay taxes, both those due once a year and quarterly payments.
Online payments
- IRS Direct Pay: For individuals, the IRS Direct Pay system is a way to pay quarterly estimated taxes directly from your bank account with zero added fees or penalties. For many, this is the default and best way to pay both estimated tax and any other tax liabilities throughout the year.
- Electronic Federal Tax Payment System (EFTPS): The IRS allows individuals and businesses to use the EFTPS to pay their taxes, though this is the favored method for many companies. While this system requires advance enrollment, it also provides detailed payment tracking, which can be invaluable for keeping accurate records (like those you'll need for next year's estimated payments).
- Credit or debit card payments: If it's something that appeals to you, the IRS works with third-party vendors to allow individuals to pay via credit or debit card. While this method comes with certain fees, that price may be worth it for those with credit cards that have strong reward programs.
- Wire transfer: When time is short, and deadlines are immediately around the corner, a direct wire transfer to the IRS may be the fastest way to pay your quarterly taxes. Still, make sure to follow all relevant IRS guidelines when paying this way.
Payment by mail
- Check or money order: If, like many individuals, you prefer to stick with more traditional methods of payment, you can always mail a check or money order. Simply make the payment out to the "United States Treasury" and make sure to include your Social Security number, the tax form number for your payments, and the tax period related to the payment.
- Voucher: When paying by check or money order, include the 1040-ES or 1120-W payment voucher. This voucher is included with the rest of your quarterly tax paperwork and helps the IRS process your payment correctly.
An important reminder for electronic payments
For those who opt for either the EFTPS or IRS Direct Pay, we strongly suggest setting up your account before your quarterly payments come due. To use the EFTPS, for instance, individuals need to complete a considerable enrollment process that includes verifying identity, bank accounts, and other information, all of which may take several days.
What happens if you miscalculate your estimated tax payments?
If you miscalculate your quarterly estimated tax payments for some reason, you'll end up with one of two outcomes: underpayment or overpayment.
Underpayment
If, at the end of the year, you've paid less than 90% of the tax you ultimately owed, less than 100% of your previous year's tax liability (110% for couples making more than $150,000 or individuals making more than $75,000), or owe more than $1,000 after applying all deductions, you may be hit with penalties or interest.
Penalties
Depending on the specifics of your circ*mstances, whether you're an individual or company, and the amount by which you underpaid, the IRS may decide to impose penalties. These vary on a case-by-case basis but can be determined using Form 2210, or "underpayment of estimated tax by individuals, estates, and trusts."
In some cases, however, individuals may be able to obtain certain waivers or exemptions to help lessen the blow of any penalties incurred by underpayment.
Interest
Even in the short term, the IRS charges interest on any underpaid taxes throughout the year. Although this interest rate is determined quarterly, it equals the federal short-term rate at that point plus 3%. Interest begins accumulating on each payment's due date and continues until the actual amount is paid in full.
Remember that you can perform mid-year adjustments to prevent ongoing underpayment. By doing so, you can limit the amount of taxes you owe on any miscalculated payments.
Overpayment
If, for whatever reason, you managed to overpay on your quarterly taxes throughout the year, you may be due for a payout from the IRS. Typically, this type of payout takes the form of a refund or credit.
Refunds
Refunds earned through overpaying on your quarterly estimated taxes work almost identically to any other type of refund: when you file your tax return, you can opt to have the extra money returned to you through any of the same methods you'd use to pay.
While not ideal, overpaying and receiving a refund is often preferable to underpaying and suffering penalties or interest.
Tax credits
If you decide not to receive a refund, you can instead choose to have the amount you overpaid to be applied to next year's taxes. This may be less of a headache for some people, but it's important to factor in this type of credit when calculating the following year's estimated taxes in order to avoid a repeat of the situation.
