Making Estimated Tax Payments

April 28, 2023
Estimated Reading Time: 8 Minutes

What are Estimated Tax Payments?

Estimated tax payments are periodic (usually quarterly) payments made by individuals and businesses to the government for taxes on income that is not subject to withholding, such as earnings from self-employment, interest, dividends, rent, or gains from the sale of assets. These payments are made in installments throughout the year and are meant to cover the taxpayer's expected tax liability.

Estimated tax payments help taxpayers avoid underpayment penalties and large tax bills at the end of the year. Taxpayers are generally required to make estimated tax payments if they expect to owe a certain amount in taxes after subtracting any withholding and tax credits. The specific threshold varies depending on the taxpayer's filing status and income. To calculate the estimated tax payments, taxpayers can use Form 1040-ES (for individuals) or Form 1120-W (for corporations) provided by the Internal Revenue Service (IRS).

Keep in mind that tax laws and requirements vary, so the process for making estimated tax payments may differ depending on the jurisdiction.

Who Has to Pay Estimated Tax Payments?

Generally, individuals and businesses that have income not subject to tax withholding need to pay estimated tax payments. Here are some examples of people who might need to make these payments:

Self-employed individuals or freelancers

If you run your own business or work as an independent contractor, your income is not subject to automatic tax withholding, so you may need to make estimated tax payments.


If you earn income from investments, such as interest, dividends, or capital gains from the sale of assets, you may need to pay estimated taxes on that income.


If you receive rental income from properties you own, you may need to make estimated tax payments on that income.


If you receive income from sources such as pensions, annuities, or Individual Retirement Accounts (IRAs) that are not subject to withholding, you may need to make estimated tax payments.

Gig economy workers

If you work in the gig economy (e.g., rideshare driver, food delivery, or freelance work), your income might not have taxes withheld, and you may need to make estimated tax payments.

In the United States, you usually need to make estimated tax payments if you expect to owe a certain amount in taxes after subtracting any withholding and tax credits. The specific threshold depends on your filing status and income. However, tax laws and requirements can vary by country, so the rules for making estimated tax payments may differ depending on your location.

How Can I Calculate My Estimated Tax Payments?

To calculate your estimated tax payments, you can follow these general steps:

Estimate your taxable income

Start by estimating your total income for the year, including self-employment income, interest, dividends, rental income, or any other sources of income not subject to withholding.

Estimate your deductions

Determine your deductions, such as business expenses, standard or itemized deductions, and any other deductions you may qualify for. Subtract these deductions from your total income to arrive at your estimated adjusted gross income (AGI).

Calculate your taxable income

Apply any exemptions, adjustments, or credits you're eligible for to your AGI. This will give you an estimate of your taxable income for the year.

Estimate your total tax liability

Calculate your tax liability using the appropriate tax rates and brackets for your filing status. Don't forget to factor in self-employment taxes, if applicable.

Subtract withholding and credits

Subtract any tax withholding or credits you expect to receive during the year from your total tax liability. This will give you an estimate of the amount you need to cover with estimated tax payments.

Divide the remaining amount by the number of payment periods

Typically, estimated tax payments are made quarterly, so divide the amount you need to cover by four to determine your estimated tax payment for each quarter.

In the United States, you can use Form 1040-ES (for individuals) or Form 1120-W (for corporations) to help you calculate your estimated tax payments. These forms include a worksheet that guides you through the process and provides the necessary tax rates and brackets.

When Do I Have to Make Estimated Tax Payments?

In the United States, estimated tax payments are generally due quarterly, with the following deadlines:

First quarter: April 15

Second quarter: June 15

Third quarter: September 15

Fourth quarter: January 15 of the following year

If any of these dates fall on a weekend or a legal holiday, the deadline is extended to the next business day.

What Happens if I Miss an Estimated Tax Payment?

If you miss an estimated tax payment or pay less than the required amount, you might face some consequences:

Interest and penalties

The Internal Revenue Service (IRS) may impose interest and penalties on the unpaid or underpaid amount. The interest accrues from the due date of the estimated tax payment until the date you make the payment. The penalty is calculated separately for each missed or underpaid installment, and the rate may vary depending on the period you are late.

Larger tax bill

Missing or underpaying estimated tax payments can result in a larger tax bill when you file your annual tax return, as you may have to pay the remaining tax liability plus interest and penalties.

To avoid or minimize penalties and interest, it's crucial to make up for the missed payment as soon as possible. If you realize you have missed a payment or underpaid, you can make an additional payment or increase your next estimated tax payment to cover the shortfall. It's also a good idea to review and adjust your estimated tax calculations throughout the year to ensure you're paying the correct amounts.

If you have a reasonable cause for missing or underpaying your estimated tax payment, the IRS may waive the penalty. To request a waiver, you may need to provide an explanation and any relevant documentation to support your claim when filing your tax return. However, you should consult a tax professional for guidance on your specific situation.


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