What Are Estimated Tax Payments?

November 19, 2024

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Taxes are due whenever you earn or receive income. The IRS describes it as “pay-as-you-go,” which requires you to pay your taxes on a periodic basis throughout the year.

There are two ways to do this. One is through the employer tax withholding method, where your employer withholds a certain amount from your paycheck for tax and then sends the tax payment to the IRS for you.

The second way is by making quarterly estimated tax payments, where you send in the payments to the IRS yourself. You’re likely going to have to make estimated payments if taxes are not automatically withheld (or if not enough is withheld) for you as you earn money during the year. For example, individuals who are self-employed typically have to make estimated tax payments throughout the year.

It’s also possible for some taxpayers to use a combination of both methods.

Who has to pay estimated taxes?

According to the IRS, generally, you are required to pay estimated taxes if both of these conditions apply:

1.) You expect to owe at least $1,000 in tax for the current tax year after subtracting your withholding and refundable credits.

2.) You expect your withholding and refundable credits to be less than the smaller of

90% of the tax to be shown on your current year's tax return, or
100% of the tax shown on your prior year's tax return (your prior year's tax return must cover all 12 months).

The IRS provides a few examples of when you might have to make estimated tax payments: For instance, if you’re in business for yourself (self-employed) or if receive income such as interest, dividends, alimony, self-employment income, capital gains, prizes, and awards.

You may also have to pay estimated taxes if the amount of income tax withheld from your salary (or pension) is not enough.

In other words, even if your employer is withholding taxes for you, you still have to make sure you’ve asked your employer to withhold enough so that you can avoid having to pay estimated taxes. This is why it’s important to correctly fill out the W-4 withholding form from your employer and keep it updated.

If you're unsure whether you have to pay estimated taxes, consult a tax professional or visit IRS.gov.

Good to know: Certain taxpayers are subject to special rules when it comes to estimated tax payments, including farmers, fishermen, household employers, higher-income taxpayers, and nonresident aliens. For more information, see IRS Publication 505.

What are the due dates for estimated tax payments?

If you’re required to make estimated tax payments, they are typically due on April 15, June 15, September 15, and January 15 (of the following year). For the most up-to-date schedule, see the IRS FAQs page on estimated tax.

How to make estimated tax payments

Generally, you may use the worksheet in Form 1040-ES to help you with your calculations. The IRS recommends using the figures from your prior year’s tax return as a starting point.

The total amount of your estimated tax payments depends, in part, on your estimated adjusted gross income, deductions, and credits for the given tax year. If your taxes are complex, consider asking a tax professional for help.

When you’re ready to make a payment, the IRS offers a few options. You may send your estimated tax payments with Form 1040-ES by mail. You can also pay via the IRS2Go app or through your IRS online account.

Visit IRS.gov/payments to view all your options.

What happens if you don’t pay your estimated taxes?

If you do not pay the correct amount of estimated taxes by the IRS due dates during the tax year, you may have to pay a penalty - even if you're due for a refund when you file your income tax return. See IRS "Underpayment of estimated tax".

The IRS typically waives the penalty under special circumstances, including taxpayers who have been affected by a casualty or natural disaster (see “Waiver of Penalty” in Form 2210 for more details).

Saving for estimated tax payments

Saving for taxes is something you rarely have to think about when an employer does it for you through withholding.

However, paying estimated taxes yourself requires discipline because you have to remember to save a portion of your pay periodically so that you can make your payments to the IRS on time.

This is especially true for those who are self-employed. You can’t get too excited every time you get a big check from a client. Remember, a portion of that will have to go toward your estimated tax payments.

To help you stay on top of your obligations, consider getting into the habit of putting a portion of your self-employed income into a savings account each month (or whenever you get paid) for tax purposes. You may want to consult with a tax professional if you need help figuring out how much you should be setting aside.

We know saving for taxes is not exactly fun. But with a little planning, making estimated tax payments won’t always have to inspire dread.

Getting a refund this tax season? Make your money go further when you open a Marcus Online Savings Account.

See savings options

This article is for informational purposes only and is not a substitute for individualized professional tax advice. Individuals should consult their own tax advisor for matters specific to their own taxes. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Goldman Sachs Bank USA and Goldman Sachs & Co. LLC are not providing any financial, economic, legal, accounting, tax or other recommendations in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates. Neither Goldman Sachs Bank USA, Goldman Sachs & Co. LLC nor any of their affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements of any information contained in this document and any liability therefore is expressly disclaimed.