The only time most people have to send a payment to the IRS (if at all) is if they owe tax when they file their federal income tax return each year. But if you don’t have taxes withheld from your paycheck or other taxable income, you probably need to make estimated tax payments periodically during the year.
That’s because the U.S. tax system operates on a “pay as you go” basis. In other words, Uncle Sam wants to be paid when you get paid. So, if the government isn’t getting its cut from income tax withholding, then it expects to be paid through “quarterly” estimated tax payments. (They’re not exactly quarterly, but most people refer to them as quarterly tax payments anyway.)
If you don’t pay estimated taxes on time, you could be hit with IRS penalties and interest. So, it’s important to know when estimated tax payments are due. You can also be penalized for not paying enough federal taxes during the year.
Naturally, you want to avoid those penalties. The key is knowing the estimated tax due dates, who must pay estimated taxes, and how to make estimated tax payments. Once you have this information, satisfying any estimated tax requirements is a cinch.
Related: When Are Taxes Due? [2023 Tax Deadlines]
Who Should Make Quarterly Estimated Tax Payments?
There are a number of scenarios under which you might have to pay estimated taxes. One of the most common reasons why you might have to pay estimated tax is if you receive taxable income that typically isn’t subject to federal income tax withholding. Dividends, interest, capital gains, rental income, and royalties are examples of taxable income that fall into this category.
However, an estimated tax requirement can still be triggered if you receive income that’s frequently subject to withholding (e.g., unemployment compensation, taxable Social Security benefits, or retirement plan distributions). For example, you might not have enough tax withheld to satisfy the pay-as-you-go requirements. Or you can choose not to have taxes withheld, even though withholding is an option. In these cases, you might need to make estimated tax payments to avoid penalties and interest.
In addition, self-employed people usually need to make estimated tax payments, since there’s typically no withholding from self-employment income. Partners in a partnership, S corporation shareholders, sole proprietors, and other small business owners often must pay estimated taxes on business income that passes through to them, too.
Who’s Not Required to Pay Estimated Taxes?
There are exceptions to the general rules for who should pay estimated taxes. For example, you don’t need to make estimated tax payments if you don’t reasonably expect to owe at least $1,000 in federal income tax for the year, after subtracting your withholding and refundable tax credits on your tax return.
You can also skip estimated taxes if you expect your withholding and tax credits for the year to be at least one of the following:
- 90% of your tax liability for the current year
- 100% of your tax liability for the previous year if your adjusted gross income for the previous year was $150,000 or less ($75,000 or less if you’re married but filing a separate return for the current tax year)
- 110% of your tax liability for the previous year if your adjusted gross income for the previous year was over $150,000 (over $75,000 if you’re married but filing a separate return for the current tax year)
If at least two-thirds of your gross income for the current or prior year is from farming or fishing, the 90% tax liability threshold is cut to 66.667% and the 110% threshold for higher-income taxpayers doesn’t apply.
You also don’t have to pay estimated tax if all three of the following are true:
- You had no tax liability for the previous year (i.e., your total tax was zero or you didn’t have to file an income tax return).
- You were a U.S. citizen or resident alien for the whole year.
- The previous tax year covered a 12-month period.
Related: Do You Have to File Taxes This Year?
When Are Estimated Tax Payments Due?
Estimated taxes for the year are typically paid in four equal installments. As mentioned earlier, even though they’re commonly called “quarterly” tax payments, estimated tax payments aren’t really made on a strict quarterly basis.
There are set dates for each installment, and those dates are generally the same from year to year. However, if the standard due date falls on a weekend or legal holiday, then it’s pushed back to the next business day.
Each payment also covers income from a specified time period. As a result, you don’t have to make estimated tax payments until you actually have taxable income requiring an estimated tax payment. So, for example, if you don’t have any taxable income upon which there’s no withholding until August, you don’t have to pay estimated tax until the third payment for the year is due.
2023 Estimated Tax Due Dates
For people making estimated tax payments for 2023, the year is divided into four “payment periods.” Each payment period has its own estimated tax payment due date. When you first receive income in 2023 for which you need to pay estimated tax, you must make your first estimated payment by the due date for the corresponding payment period, as shown in the following table.
|Payment||2023 Payment Period (Date Income First Received)||Due Date of Payment|
|1st Payment||Jan. 1 to March 31||April 18, 2023|
|2nd Payment||April 1 to May 31||June 15, 2023|
|3rd Payment||June 1 to Aug. 31||Sept. 15, 2023|
|4th Payment||Sept. 1 to Dec. 31||Jan. 16, 2024|
YATI Tax Tip: You don’t have to make the fourth installment payment for 2023 if you file your 2023 tax return by Jan. 31, 2024, and pay the entire tax due with your return.
You can either pay all your estimated tax at once by your first due date or pay your estimated tax for the year in installments. If you pay in installments, which most people do, make your first payment by the due date for the first payment period, then make any remaining installment payments by the due dates for the later payment periods.
Suzanne receives $1,000 of rental income every month from real estate she owns. She received her first rent payment for the year on Jan. 3, 2023. Her first estimated tax payment for the year is due on April 18, 2023. If she decides to make “quarterly” tax payments instead of paying all her estimated tax by April 18, she must also make payments on June 15, 2023, Sept. 15, 2023, and Jan. 16, 2024, for a total of four equal installments.
Kay withdrew money from a retirement account for the first time on April 1, 2023. Taxes were not withheld from the withdrawal. Kay’s first estimated tax payment for the year is due on June 15, 2023. If she decides to make “quarterly” tax payments instead of paying all her estimated tax by June 15, she must also make payments on Sept. 15, 2023, and Jan. 16, 2024, for a total of three installment payments.
Due dates for farmers and fishermen
A couple of special rules apply if at least two-thirds of your gross income for 2022 or 2023 is from farming or fishing.
- First, you can wait until Jan. 16, 2024, to pay all of your estimated tax for the year. You won’t have to make any other payments for 2023.
- Second, you aren’t required to make any estimated tax payments at all If you file your 2023 income tax return by March 1, 2024, and pay any tax at that time.
Related: Federal Tax Brackets and Rates
How to Pay Estimated Taxes
Once you know estimated taxes are required and when they’re due, you need to figure out how much estimated tax you owe and how to send your tax payments to the IRS. You’ll need Form 1040-ES and the accompanying instructions to calculate your payments, and you might need the form to send a payment to the IRS, too.
Calculating Your Estimated Tax Payments
Let’s start with the calculation of each estimated tax payment for 2023. First, you must determine the total estimated tax you must pay for the year using the Estimated Tax Worksheet in the instructions for Form 1040-ES. This amount is based on your expected adjusted gross income, taxable income, taxes, deductions, and tax credits for the year.
YATI Tax Tip: Since you’re estimating the year’s tax outcome, it might help to use amounts from your 2022 tax return as a starting point. However, you must tweak these figures to account for recent tax law changes and changes to your own situation (e.g., more or less income, marriage or divorce, having a baby, etc.).
If the income for which estimated taxes are required doesn’t fluctuate very much, multiply the total estimated tax for the year by the percentage shown in the table below to calculate the amount of each individual payment for the 2023 tax year.
|Percentage For Estimated Tax Payment Due On…|
|Due Date of First Estimated Tax Payment||April 18, 2023||June 15, 2023||Sept. 15, 2023||Jan. 16, 2024|
|April 18, 2023||25%||25%||25%||25%|
|June 15, 2023||–||50%||25%||25%|
|Sept. 15, 2023||–||–||75%||25%|
|Jan. 16, 2024||–||–||–||100%|
Annualized income installment method
If your income goes up and down during the year (e.g., you have seasonal income from a side job), you can use the annualized income installment method to calculate the amount of each payment. With this method, your tax is analyzed at the end of each payment period based on a reasonable estimate of your income, deductions, and other items from the beginning of the year through the end of the period. This could allow you to lower or eliminate estimated tax payments for one or more payment periods.
Use the Annualized Estimated Tax Worksheet in IRS Publication 505 to see if you can pay less for any period with this method. You must also file Form 2210 with your tax return for the year if you use the annualized method to calculate your estimated tax payments.
Making Estimated Tax Payments to the IRS
There are a number of ways to make an estimated tax payment. For instance, you can:
- Apply all or part of a tax refund for the previous tax year to your estimated tax for the current year (must be done when the previous year’s tax return is filed)
- Authorize a direct transfer from your bank account
- Pay with a debit or credit card online or over the phone (fees apply)
- Mail a paper check or money order to the IRS with Form 1040-ES
- Pay with cash in person at an IRS retail partner (maximum of $1,000 per day per transaction; must first register online at fed.acipayonline.com)
Details of the various tax payment methods are available on the IRS website.
Related: What Is the Standard Deduction?
Penalties for Not Making Estimated Payments (Or Not Paying Enough)
Watch out if you don’t pay enough tax during the year, either through withholding or by making estimated payments. The IRS can hit you with a stiff underpayment penalty. Interest on the underpayment might apply, too. You can even owe a penalty and interest if you end up with a refund when you file your tax return for the year.
The penalty is imposed separately for each payment period and grows larger each day the estimated tax remains unpaid. You can be hit with the penalty if you didn’t pay enough estimated tax for the year as a whole, an installment payment was late, or a particular payment was not enough.
Calculating the penalty amount can be tricky. That’s why the IRS will calculate it for you and send you a bill (unless you used the annualized income installment method to calculate your payments). If that’s what you want to do, simply leave the estimated tax penalty line on your federal tax return blank (Line 38 on 2022 tax returns). The IRS won’t charge interest on the penalty if you pay it by the date listed on the bill.
If you’d rather figure the penalty yourself, fill out Form 2210 (farmers and fishermen must use Form 2210-F) and submit it with your tax return for the year.
Waiver of Estimated Tax Penalty
There’s some good news regarding penalties, though. All or part of a penalty for underpayment of estimated tax can be waived if either:
- During the tax year in question or previous year, you retired after reaching age 62 or became disabled, and your underpayment was due to reasonable cause and not willful neglect
- The underpayment was due to a casualty, disaster, or other unusual circumstance, and it would be inequitable to impose the penalty.
Use Form 2210 or Form 2210-F to request a waiver. Just know that there’s no guarantee that your penalty will be waived—it’s up to the IRS.
Related: Earned Income Tax Credit: How Much, Eligibility + More
State Estimated Tax Payments
You must pay federal taxes as described above, but do you have to pay quarterly estimated taxes to your state as well? Maybe.
If you live in a state without a broad-based income tax—Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming—you don’t need to worry about making estimated tax payments to your state.
However, if your state imposes a general income tax, then chances are you must “pay as you go” through state withholding or estimated payments, too. The estimated tax payment requirements for your state will likely be different than the federal rules, so check with the state tax agency where you live for guidance.