Are you self-employed or earning income without tax withholding? Discover how to master estimated taxes and keep more of your hard-earned money in your pocket while staying penalty-free.
If you’re earning income that doesn’t have taxes automatically withheld—like freelance, business, or investment income—you’re responsible for paying estimated taxes. Calculating and paying these taxes correctly ensures you avoid penalties and stay on track with the IRS. Knowing the process can save you time, stress, and money.
What are estimated taxes, quarterly taxes, and tax prepayments?
If you work for yourself, run a small business, or earn income from side jobs—like freelancing, gig work, or cash jobs—nobody is automatically taking taxes out of your paycheck. This is different from a regular job where your employer deducts taxes for you. Since you’re responsible for paying taxes on your income, you need to make estimated tax payments throughout the year.
Estimated Taxes: These are payments you send directly to the IRS (and your state, if required) to cover the taxes you owe on your income. They are “estimated” because you’re making an educated guess about how much you’ll earn for the year and what your tax bill will be.
Quarterly Taxes: Instead of paying all of your taxes in one lump sum at the end of the year, the IRS splits the year into four parts, or “quarters.” You pay a portion of your estimated taxes every three months. This helps you stay on track and avoid a huge bill come tax season.
The four payment deadlines are in:
April
June
September
January.
Tax Prepayments: This is just another name for estimated taxes. It means you’re paying your taxes ahead of time, in smaller, manageable chunks.
Why are Estimated Taxes Important?
The U.S. tax system works on a “pay-as-you-go” basis. This means you’re expected to pay taxes as you earn income throughout the year, not just at tax time. For people who get regular paychecks, employers handle this by withholding taxes from their pay and sending the money to the IRS.
But if you:
Work for yourself (like a contractor, freelancer, or business owner),
Get paid in cash, tips, or as part of the gig economy,
Have income from investments, rental properties, or side jobs,
Then you’re responsible for estimating your taxes and paying them yourself.
What Happens If You Don’t Pay?
If you don’t make these payments, or if you pay too little, you might owe penalties and interest when you file your tax return. The IRS wants you to stay current throughout the year, so missing quarterly payments can add up to a bigger bill later.
Example:
Imagine you’re a handyman earning $50,000 this year. Since no one is withholding taxes from your pay, you’ll owe taxes on the $50,000. Instead of waiting until next April to pay all those taxes at once, you make four smaller payments—one in April, June, September, and January.
By paying estimated taxes, you:
Spread out your payments so they’re easier to manage.
Avoid getting hit with penalties for not paying on time.
Prevent a huge, stressful tax bill at the end of the year.
Making these payments helps you stay in control of your taxes and keeps you in good standing with the IRS.
Who has to pay estimated taxes?
If you earn money and no one is automatically taking taxes out of it, you probably need to pay estimated taxes. This mainly applies to people who are self-employed, run small businesses, or earn other types of untaxed income.
Here's how to know if you need to pay:
You work for yourself or run a business.
This includes freelancers, gig workers (like Uber drivers or DoorDash delivery workers), independent contractors, and small business owners.
If you’re earning income and no taxes are being withheld from your pay, the IRS expects you to send them your share in quarterly payments.
You get income that isn’t taxed.
Do you get paid in cash, tips, or checks?
Do you have side jobs, like mowing lawns, handyman work, or painting houses?
Do you earn money from rental properties, selling products, or investments?
All of this income counts, and if you expect to owe at least $1,000 or more in taxes for the year, you need to pay estimated taxes.
You’re an employee but not enough tax is withheld.
Even if you have a regular job, sometimes your employer isn’t withholding enough taxes from your paycheck. This can happen if you:
Work multiple jobs.
Have side income like freelance work or investments.
Claim too many allowances on your W-4 form (the form that tells employers how much tax to withhold).
If this is the case, you may need to pay estimated taxes to cover the difference.
You have investment or passive income.
Income from stocks, dividends, interest, rental properties, or selling assets like real estate can lead to tax bills that aren’t paid during the year.
How Do I Know If This Applies to Me?
To keep it simple: If you’re earning income and no one is taking taxes out of it for you, you’re responsible for paying estimated taxes.
If you work jobs that pay cash or don’t get a W-2, assume you need to pay.
If you’re unsure, look at last year’s tax return or talk to a tax professional.
Example: Meet Joe the Handyman
Joe works odd jobs fixing fences, doing small repairs, and painting houses. He gets paid in cash and checks. Last year, Joe owed $2,000 in taxes because no one took money out of his pay. This year, he expects to earn the same amount.
To avoid a big surprise at tax time, Joe needs to pay estimated taxes four times during the year. By making smaller payments every few months, Joe can stay on top of his taxes, avoid penalties, and focus on his work without stress.
Key Tip: If you’re not sure if this applies to you, it’s always better to check. If you skip estimated taxes and owe too much at the end of the year, the IRS will charge you extra fees for underpaying.
How do I calculate and pay estimated taxes?
If you’re responsible for paying estimated taxes, the process might seem overwhelming at first, but it’s really just about figuring out how much you owe and sending it in on time. Here’s how to do it step by step:
Calculate How Much You Owe
You need to estimate how much income you’ll earn for the year and figure out the taxes you’ll owe on it.
Step 1: Estimate Your Income
Look at your earnings so far this year.
If your income is steady (like a monthly gig), multiply it to estimate your yearly total.
If it varies (like seasonal work), use last year’s income as a starting point.
Step 2: Calculate Your Taxable Income
Subtract business expenses or other deductions from your total income.
For example, if you made $50,000 but spent $10,000 on supplies and tools, your taxable income is $40,000.
Step 3: Use the IRS Tax Rates
Apply the current tax brackets to your estimated income to calculate your tax.
Don’t forget to include self-employment tax (about 15.3%) if you’re working for yourself.
Quick Tip: You can use the IRS Form 1040-ES or an online calculator to help estimate your taxes. A tax professional can also give you an accurate number.
Break Payments Into Four Parts
Once you know how much tax you owe for the year, divide that number by four. These are your quarterly payments.
For example:
If you owe $4,000 in estimated taxes for the year, you’ll pay $1,000 every quarter.
Pay Your Estimated Taxes
You have several easy ways to send your payments:
Online (Fastest and Easiest):
Go to the IRS Direct Pay website to make a secure payment.
You can pay with your bank account for free or use a credit/debit card (with a small fee).
DO NOT PAY ON ANY WEBSITE THAT DOES NOT END IN .GOV FOR YOUR TAX PAYEMENTS. THEY ARE SCAMS. EXAMPLE OF GOOD WEBSITE: IRS.GOV, FTB.GOV, ECT.
By Mail:
Fill out Form 1040-ES and include a check or money order.
Mail it to the IRS address listed on the form for your state.
State Payments:
If you owe state estimated taxes, check your state’s tax website for payment options.
Stay Organized
Keep a record of all your payments, including dates and amounts.
If your income changes during the year (higher or lower), recalculate your estimated taxes for the remaining quarters.
Example: Meet Joe the Handyman (Again)
Joe expects to make $40,000 this year, and his estimated tax is $5,000. To avoid penalties:
Joe divides $5,000 by 4 and pays $1,250 every quarter.
He goes to IRS Direct Pay to make each payment online, using his bank account.
He keeps a record of his payments so he’s ready for tax season.
Why It Matters
Paying estimated taxes throughout the year helps you:
Avoid penalties and interest for underpaying.
Spread out your tax payments so you don’t get hit with a huge bill at the end of the year.
Stay in good standing with the IRS, which saves you stress in the long run.
Pro Tip: If you’re unsure about calculations or worried about paying the wrong amount, talk to a tax professional. They can help you get it right and set up a system that works for you.
When do I have to pay estimated taxes?
The IRS requires you to pay estimated taxes four times a year. These deadlines are based on quarters, but they don’t line up perfectly with regular calendar quarters. Missing these dates can lead to penalties, so it’s important to mark them on your calendar and plan ahead.
Estimated tax deadlines:
April 15th – Covers income earned from January 1 to March 31.
June 15th – Covers income earned from April 1 to May 31.
September 15th – Covers income earned from June 1 to August 31.
January 15th of the following year – Covers income earned from September 1 to December 31.
If any of these dates fall on a weekend or holiday, the deadline is moved to the next business day.
What Happens If I Miss a Payment?
If you miss a deadline or pay less than you owe, the IRS may charge underpayment penalties and interest. These penalties add up over time, so it’s better to pay on time, even if you’re unsure of the exact amount.
Example:
Joe the handyman earned $12,000 by March 31. His first estimated tax payment of $1,500 is due April 15th. If Joe forgets to pay or only sends $500, the IRS will charge him penalties for underpayment.
What If My Income Changes?
If you earn more or less during the year, you’ll need to adjust your estimated payments. It’s okay to recalculate each quarter:
If your income goes up, you’ll need to pay more to avoid penalties.
If your income goes down, you can reduce your next payment.
You don’t have to stick to the same number every quarter as long as your payments accurately reflect your yearly income.
Special Rules for Farmers, Fishermen, and High Earners
Farmers and Fishermen: If at least two-thirds of your income comes from farming or fishing, you may only need to make one estimated payment by January 15th.
High Earners: If you earn a lot more than last year, you may owe more taxes than you expect. The IRS requires you to pay at least 90% of this year’s tax or 100% of last year’s tax to avoid penalties (110% if your income is very high).
Pro Tip for Staying on Track
Use a calendar, reminders, or apps to keep track of the due dates.
Pay as early as possible, even if you’re making partial payments.
A tax professional can help you adjust payments as your income changes.
What is the timeline to prepare estimated taxes and pay them?
Preparing and paying estimated taxes doesn’t have to be rushed. By understanding the timeline and planning ahead, you can avoid last-minute stress.
Gather Your Income Information Before Each Deadline
At the end of each payment period (or quarter), review your income and expenses. This will help you calculate how much tax you owe. Here's what to do:
Step 1: Look at your total income for the quarter (January–March, April–May, etc.).
Step 2: Subtract business expenses or deductions. For example:
Supplies, tools, or equipment for work.
Mileage or travel costs related to your work.
Other business-related expenses.
Step 3: Use this adjusted income to estimate your taxes.
Know the Payment Deadlines
The estimated tax year is divided into four quarters. Here’s when you should prepare and pay:
Quarter 1:
Prepare: Review January–March earnings by early April.
Pay: April 15th.
Quarter 2:
Prepare: Review April–May earnings by early June.
Pay: June 15th.
Quarter 3:
Prepare: Review June–August earnings by early September.
Pay: September 15th.
Quarter 4:
Prepare: Review September–December earnings by early January.
Pay: January 15th (of the following year).
Build a System for Staying on Track
Set Reminders: Use phone alarms, calendars, or apps to remind you about payment deadlines.
Update Your Numbers Regularly: If your income changes (up or down), adjust your next payment.
Save as You Go: Set aside a percentage of every payment you receive. For example, you could save 25–30% of each paycheck to cover your estimated taxes.
Avoid the Last-Minute Rush
Preparing at the end of each quarter gives you time to:
Check your income and expenses for accuracy.
Make sure you have enough money set aside to pay the IRS.
Ask a tax professional for help if you’re unsure about your numbers.
Example:
Joe the handyman knows his second quarterly payment is due June 15th. By June 5th, he gathers his income and expenses from April and May. He calculates that he owes $1,200 and makes the payment online using IRS Direct Pay well before the deadline.
Key Takeaway:
Stick to the timeline by reviewing your income at the end of each quarter and paying what you owe before the due date. Preparing early helps you avoid penalties, stress, and scrambling to find the money last minute.
Pro Tip: Treat estimated taxes like any other bill—set aside money regularly so you’re ready when the payment is due.
Most common myths about calculating and paying estimated taxes
Myth: I don’t need to pay estimated taxes if I don’t owe much.
Reality: If you expect to owe at least $1,000 in taxes after subtracting credits and withholding, the IRS requires you to pay estimated taxes. Even smaller amounts can trigger penalties if they’re not paid on time.
Myth: I only need to pay estimated taxes once a year.
Reality: Estimated taxes are broken into four quarterly payments throughout the year—April 15, June 15, September 15, and January 15. Paying once a year means you’ll likely face penalties and interest for underpayment.
Myth: I don’t need to pay taxes on cash income.
Reality: All income, whether paid in cash, checks, or digital payments (like Venmo or PayPal), must be reported to the IRS. If you’re earning cash from side jobs or freelance work, you need to include it in your income and pay taxes on it.
Myth: If I miss a payment, I can just catch up at the end of the year.
Reality: While you can make late payments, the IRS charges penalties and interest for each quarter you underpay or miss. It’s better to send partial payments on time than to skip a deadline altogether.
Myth: I can guess my payments and fix it later when I file my taxes.
Reality: While your estimated taxes are based on your best guess, the IRS expects those estimates to be reasonable. If you underpay by too much, you could face penalties. A good rule is to pay at least 90% of what you owe for the current year or 100% of what you owed last year to stay safe.
(FAQ) Frequently asked questions about calculating and paying estimated taxes
Question: What happens if I don’t pay estimated taxes?
Answer: If you don’t pay enough in estimated taxes during the year, the IRS will charge you underpayment penalties and interest. These penalties apply even if you pay everything when you file your tax return. It’s better to make smaller payments throughout the year to avoid extra fees.
Question: How do I know how much to set aside for estimated taxes?
Answer: A good rule of thumb is to set aside 25% to 30% of every payment you receive, especially if you’re self-employed. This covers income taxes and self-employment taxes. For a more accurate number, you can use the IRS Form 1040-ES worksheet or consult a tax professional.
Question: Can I change my estimated tax payments if my income changes?
Answer: Yes. If your income goes up or down during the year, you should recalculate your estimated taxes for the next quarter. This helps you avoid paying too much or too little. You’re allowed to adjust your payments each quarter to match your actual earnings.
Question: Can I pay estimated taxes in one lump sum?
Answer: Technically, yes, but it’s not recommended. The IRS expects payments to be made quarterly. If you wait to pay everything at the end of the year, you’ll likely owe penalties and interest for underpayment during the earlier quarters.
Question: Where do I pay my estimated taxes?
Answer: You can pay estimated taxes in several ways:
Online at IRS Direct Pay (free and secure).
By mail with a check or money order, using Form 1040-ES.
Always keep a record of your payments for your records.
More Reading
IRS Estimated Taxes (Form 1040-ES)
IRS Direct Pay
IRS Publication 505: Tax Withholding and Estimated Tax
EFTPS: Electronic Federal Tax Payment System
CA FTB Direct Pay
Final Thoughts
Paying estimated taxes might seem like one more hassle, but breaking it into smaller, manageable payments throughout the year can save you from stress, penalties, and a massive tax bill in April. Whether you’re self-employed, a small business owner, or earning side income, staying on top of your estimated taxes is key to keeping your finances in good shape.
By planning ahead, keeping accurate records, and making your payments on time, you can take control of your tax responsibilities and avoid surprises. If you’re unsure about calculations or deadlines, working with a tax professional can ensure you stay compliant and confident every step of the way.
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