Estimated Tax Payments: How They Work, When to Pay in 2023
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In the U.S., income taxes are collected on an ongoing basis. For many of us, this means that an employer pays federal and state taxes on our behalf by withholding a certain amount from each paycheck.
If you earn income as a freelancer, or if you receive certain types of non-wage income, you may need to pay what the IRS calls "estimated quarterly taxes." Here's what those are and how they work.
What are estimated tax payments?
Estimated tax payments are taxes paid to the IRS throughout the year on earnings that are not subject to federal tax withholding. This can include self-employment or freelancer earnings, or income you've earned on the side such as dividends, realized capital gains, prizes and other non-wage earnings.
You may also be liable for making estimated tax payments if you are an employee but the withholding on your earnings doesn’t fully cover your tax liability, meaning what you expect to owe for the tax year. The amount of money withheld on your paycheck depends on the information you provided to your employer on your W-4.
When estimated quarterly taxes are due
Estimated tax payments should be made as your income is earned, and the IRS sets deadlines for collection on a quarterly basis. Be aware that these dates don’t coincide with regular calendar quarters, so plan ahead.
For 2023, here's when estimated quarterly tax payments are due:
If you earned income during this period | Estimated tax payment deadline |
|---|---|
Sept. 1 – Dec. 31, 2022. | Jan. 17, 2023.* |
Jan. 1 – Mar. 31, 2023. | April 18, 2023. |
April 1 – May 31, 2023. | June 15, 2023. |
June 1 – Aug. 31, 2023. | Sept. 15, 2023. |
Sept. 1 – Dec. 31, 2023. | Jan. 16, 2024. |
*Note: If you file your 2022 return by January 31, 2023, and ensure that your entire balance owed is submitted with that return, you do not have to make this January 17th payment. | |
You can also make payments more often if you like, says Bess Kane, a CPA in San Mateo, California.
“I think it's easier to make 12 smaller payments than four larger payments," says Kane. "If you owe $1,200 for the year, I would rather pay $100 a month than $300 four times a year. And if we're talking bigger numbers, it gets pretty extreme.”
Who should make estimated quarterly tax payments?
People who aren't having enough withheld
The IRS says you need to pay estimated quarterly taxes if you expect:
You'll owe at least $1,000 in federal income taxes this year, even after accounting for your withholding and refundable credits (such as the earned income tax credit), and
Your withholding and refundable credits will cover less than 90% of your tax liability for this year or 100% of your liability last year, whichever is smaller. The threshold is 110% if your adjusted gross income last year was more than $150,000, or $75,000 for married filing separately.
The self-employed
Independent contractors, freelancers and people with side gigs who expect to owe more than $1,000 in taxes are prime candidates for estimated quarterly taxes, says Kane. That’s because there’s no tax automatically withheld on their income, she explains.
Businesses
Corporations may also need to make estimated income tax payments if they'll owe at least $500 for the tax year.
Landlords and investors (maybe)
People with rental income and investments might need to pay estimated quarterly taxes— even if their employers withhold taxes from their paychecks. “Those might not always be calculated into their withholding amount, and then they come up short and end up having to pay an estimated tax penalty and don't even know what estimated taxes are,” says Thomas Mangold, a CPA in Austin, Texas.
How to calculate quarterly estimated taxes
There's more than one way.
Method 1
You can estimate the amount you’ll owe for the year, then send one-fourth of that to the IRS. For instance, if you think you’ll owe $10,000 for 2023 you'd send $2,500 each quarter. This may work best for people whose income is pretty much the same throughout the year, or for people who have a good idea of what their income is going to be.
Method 2
Another method is to estimate your annual tax liability based on what you’ve already earned during the year. This is often better for people whose income varies. Essentially, you annualize your tax at the end of each quarter based on a reasonable estimate of your income and deductions so far this year. The IRS has a worksheet to help you do the math.
Either way, you'll use IRS Form 1040-ES to show your income estimate and project your tax liability. IRS Publication 505 has all the rules and details, and good tax software will help you fill out the form and do the math.
If it turns out that you overestimated or underestimated your earnings, you can complete another Form 1040-ES and refigure your estimated tax for the next quarter. When you file your annual return, you’ll likely need to attach an extra form — IRS Form 2210 — to explain why you didn’t send equal payments. If you paid too much, you can get a refund or apply the overage as a credit to future payments.
The calculations can get complicated quickly, so it’s a good idea to consult with a qualified tax preparer if you have questions. Plus, there are special rules for farmers, fishermen and certain household employers.
How to estimate taxes for an income tax extension
If your return isn't quite ready for the IRS by tax day, it's a good idea to file for an automatic six-month tax extension by the tax-filing deadline to avoid getting hit with a late-filing penalty. Because a tax extension only gives you more time to get your paperwork together, it's also important to know that you should still pay your estimated tax bill by the filing deadline in order to avoid additional fees and interest.
You can estimate your taxes owed using the 2022 Estimated Tax Worksheet found on IRS Form 1040-ES. You can also consult a tax calculator or tax software, but keep in mind that these methods may render imperfect results.
How to make estimated quarterly tax payments
There are several ways you can get your estimated tax payments to the IRS, including:
Your online IRS account.
The IRS2Go app.
IRS Direct Pay.
The U.S. Treasury’s Electronic Federal Tax Payment System.
By debit or credit (additional fees apply).
Pay in cash at certain IRS retail partners.
You can also mail your estimated tax payments with IRS Form 1040-ES using a payment voucher, but the IRS highly encourages taxpayers to consider electronic methods of payment.
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Frequently asked questions
Do you have to pay estimated taxes quarterly?
According to the IRS, you don’t have to make estimated tax payments if you’re a U.S. citizen or resident alien and you had no tax liability for the previous full tax year. And you probably don’t have to pay estimated taxes unless you have untaxed income.
Can you pay estimated taxes anytime?
Estimated taxes are due as income is earned, and the IRS sets quarterly deadlines for their collection. You can opt to send four payments per year following the IRS schedule, pay in smaller increments more frequently or cover your estimated yearly liability in your first quarterly payment — just make sure you’re covering your tax liability for each quarter to avoid penalties.
What happens if I forget to pay?
The IRS will charge penalties if you didn’t pay enough tax throughout the year. The IRS can charge you a penalty for late or inadequate payments even if you're due a refund when you file your tax return.
The IRS might give you a break on penalties if:
You were a victim of a casualty, disaster or other unusual circumstance, or
You’re at least 62, retired or became disabled this year or last year, and your underpayment was due to “reasonable cause” rather than “willful neglect”
How can I make this easier?
“If you're married and your spouse has a regular job and is having taxes withheld, he or she may have enough taxes withheld to cover the two of you,” Kane explains.
You can accomplish this by giving his or her employer a new Form W-4, instructing how much tax to withhold from each paycheck. You can change your W-4 any time. If you’re getting a pension or annuity, use Form W-4P.
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