What Are Quarterly Estimated Tax Payments?
Quarterly estimated tax payments are how self-employed workers pay their taxes throughout the year. Unlike W2 employees who have taxes withheld from every paycheck, freelancers and contractors must calculate and send their own tax payments to the IRS four times per year.
The IRS operates on a pay-as-you-go system. They expect to receive tax payments close to when income is earned, not in one lump sum at tax time. If you wait until April to pay all your taxes, you will owe an underpayment penalty on top of the tax itself.
Who Needs to Make Quarterly Payments?
You should make quarterly estimated tax payments if you expect to owe $1,000 or more in federal tax for the year after subtracting withholding and credits. This applies to freelancers, independent contractors, sole proprietors, and anyone with significant income not subject to withholding.
There are two safe harbor rules that protect you from penalties: pay at least 90% of your current year tax liability, or pay 100% of last year tax liability (110% if your AGI was over $150,000). Meeting either threshold avoids the underpayment penalty even if you end up owing at tax time.
How to Pay Quarterly Taxes
The easiest way to pay is through IRS Direct Pay at irs.gov/payments. Select "Estimated Tax" as the payment type and the correct tax year and quarter. You can also pay by mail using Form 1040-ES vouchers, or set up automatic payments through EFTPS (Electronic Federal Tax Payment System). Keep confirmation numbers for all payments as proof.