Why Quarterly Taxes Exist
Employees have taxes withheld from every paycheck. Self-employed people don't. The IRS still wants their money throughout the year, not just on April 15. Quarterly estimated taxes solve this.
Who Needs to Pay
You need to make quarterly payments if you expect to owe $1,000 or more in taxes for the year. This includes:
- Self-employed individuals
- Business owners (sole props, LLCs, partnerships)
- Anyone with significant non-wage income
The Quarterly Deadlines
- Q1: April 15 (for Jan-Mar income)
- Q2: June 15 (for Apr-May income)
- Q3: September 15 (for Jun-Aug income)
- Q4: January 15 (for Sep-Dec income)
If the 15th falls on a weekend or holiday, the deadline moves to the next business day.
How to Calculate Your Payment
Method 1: Safe Harbor (Easiest)
Pay 100% of last year's tax liability, divided by 4. If you paid $20K last year, pay $5K each quarter. No penalty, even if you owe more.
Note: If your income was over $150K, you need to pay 110% of last year's taxes for safe harbor.
Method 2: Current Year Estimate
Estimate this year's income and tax, pay 90% of that divided by 4. More accurate but requires more forecasting.
The Simple Formula
Quarterly Payment = (Expected Annual Income × Tax Rate) ÷ 4
For rough planning: set aside 25-30% of profit each month for taxes.
How to Pay
- IRS Direct Pay: Free, instant, from your bank account
- EFTPS: IRS electronic system for scheduled payments
- Check: Mail with Form 1040-ES voucher (slowest, least recommended)
State taxes are separate — check your state's payment system.
Common Mistakes
- Forgetting state taxes: Many states have their own quarterly requirements
- Inconsistent payments: One big Q4 payment can trigger penalties
- Using business account: For sole props, pay from personal (or business with proper documentation)
- Not adjusting: If income spikes, increase future payments
What If You Underpay?
The IRS charges a penalty (currently ~8% annually) on the underpaid amount. It's not catastrophic, but it's avoidable with proper planning.
Track your estimated income monthly. If you're having a better year than expected, increase your quarterly payments accordingly.