When you work for yourself, no one takes taxes out of your paycheck, because there is no paycheck. The IRS still expects to be paid as you earn, four times a year. Miss those payments and penalties can follow, even if you pay every dollar in April.
Who needs to pay
Individuals generally need to make estimated payments if they expect to owe $1,000 or more when they file, after subtracting withholding and credits. That commonly includes freelancers, consultants, real estate agents, business owners, landlords, and investors. C corporations generally make estimated payments if they expect to owe $500 or more.
When payments are due
For individuals, federal estimated payments are due:
- April 15, for income earned January through March
- June 15, for April and May
- September 15, for June through August
- January 15 of the following year, for September through December
When a date falls on a weekend or holiday, the deadline moves to the next business day.
How much to pay: the safe harbors
You can generally avoid an underpayment penalty if your withholding and estimated payments add up to at least the smaller of:
- 90% of this year's tax, or
- 100% of last year's tax, or 110% if last year's adjusted gross income was over $150,000 ($75,000 if married filing separately)
The prior-year safe harbor is popular because you already know the number. Paying it in four equal installments protects you from a penalty even if this year turns out bigger, though you'll still owe the difference when you file.
If your income is uneven
Seasonal businesses, or anyone with a large gain late in the year, can use the annualized income method. It matches payments to when income was actually earned, which can reduce or eliminate a penalty that equal installments would trigger.
California does it differently
California's estimated payments aren't split evenly. The state expects 30% by April 15, 40% by June 15, nothing in September, and 30% by January 15. Very high earners in California also face limits on using the prior-year safe harbor.
Tips that make it easier
- Set aside a fixed percentage of every payment you receive in a separate account.
- Pay through IRS Direct Pay or EFTPS and keep confirmation numbers.
- If you also have a job, increasing your paycheck withholding can cover the gap. Withholding is treated as paid evenly through the year, even if it happens late.
- Revisit your estimate midyear if your income changes significantly.
We'd use the prior-year safe harbor as the minimum, then add a cushion if this year is clearly bigger. Paying a little extra during the year beats a surprise bill in April.