Estimated tax payments can feel overwhelming, especially if you’re new to running a business or freelancing. Take, for example, a recent Reddit post from a small business owner who had just started earning from their therapy practice. They were juggling a full-time W2 job while trying to understand how much to send to the IRS and their state each quarter.
Their CPA suggested paying based on last year’s tax liability (plus 10%), but the owner was confused. Why should they pay thousands in quarterly estimates when their new business was barely making a profit?
This story captures what many self-employed people go through: figuring out whether to pay based on last year’s taxes, this year’s actual income, or some mix of both. It highlights why estimated taxes matter, not just to avoid penalties, but also to stay ahead of unexpected tax bills that can pile up at the end of the year.
That’s exactly what we’ll be covering in the article here, so you have all the information you need from the get-go.
What Are Estimated Taxes?
Think of estimated taxes as a way of paying your taxes bit by bit, instead of all at once when tax season rolls around. If you’re an employee, your company usually takes care of this for you by withholding taxes from each paycheck.
But if you’re a freelancer, gig worker, small business owner, or landlord, no one is doing that on your behalf; you’re the one responsible for sending money to the IRS (and sometimes your state) during the year.
Estimated taxes exist to keep you from facing a giant, unexpected bill in April. By paying in smaller chunks throughout the year, usually four times, you stay on track with what you owe. These payments generally cover three main things:
| Federal income tax | The same tax everyone pays on earnings |
| Self-employment tax | Covers Social Security and Medicare contributions for people who work for themselves |
| State income tax | If your state requires it |
The key difference between withholding taxes and estimated taxes is who does the paying. Withholding is automatic: your employer calculates and sends it in with every paycheck. Estimated taxes, on the other hand, are manual: you figure out what you owe and send it in yourself.
So, who actually pays estimated taxes? It’s typically anyone earning income that doesn’t come with automatic withholdings. That includes:
- Freelancers and contractors who get 1099 forms instead of W-2s
- Gig economy workers (rideshare drivers, delivery workers, etc.)
- Small business owners and entrepreneurs
- Landlords who collect rental income
- Investors with significant dividend or capital gains income
In short, if you earn money that isn’t already taxed before it reaches you, the IRS expects you to chip in through estimated taxes.
Understanding Estimated Tax
The IRS expects you to pay taxes as you earn income, not just once a year. If you’re an employee, that happens automatically because your employer withholds taxes from each paycheck.
But if you’re earning money on your own, you have to handle that responsibility yourself through estimated tax payments.
Here’s how it works in practice. You first calculate how much tax you think you’ll owe for the entire year based on your expected income, deductions, and credits. Then you split that amount into four smaller payments and send them to the IRS each quarter.
If you don’t pay enough throughout the year, you might face an underpayment penalty, even if you pay your full tax bill when you file in April. On the other hand, if you slightly overpay, you’ll get a refund just like regular employees do.
To help with the math, the IRS provides Form 1040-ES, which comes with worksheets and instructions. These worksheets walk you through estimating your income, applying deductions, and figuring out your projected tax liability.
For many people, especially in their first year of paying estimated taxes, it can feel like guesswork, but the idea is to get as close as possible to your actual tax bill.
Who Should Pay Estimated Taxes?
If you’re earning money outside of a regular paycheck with automatic withholding, chances are they apply to you. The IRS has a few rules that help determine who needs to pay.
You’ll generally need to make estimated tax payments if you expect to owe at least $1,000 in taxes after subtracting your withholding and credits. In other words, if your employer’s withholdings or refundable credits won’t cover most of your tax bill, the IRS wants you to make up the difference throughout the year.
Here’s the safe harbor rule: you’re in the clear if your withholdings and credits cover at least 90% of what you owe for the current year or 100% of what you owed last year (110% for higher-income households, typically those earning over $150,000).
If you fall short of those thresholds, that’s when estimated payments kick in.
So, who typically falls into this bucket?
| Self-employed individuals and freelancers | If you run your own business, do contract work, or get paid on 1099s instead of W-2s, you don’t have automatic withholdings, so you’re responsible for sending in your share. |
| Gig workers | Rideshare drivers, delivery workers, and others in the gig economy often need to pay estimated taxes because their platforms don’t handle withholding |
| Business owners | Especially those earning profits outside of payroll wages |
| Landlords | Rental income counts as taxable income that usually isn’t taxed upfront |
| Corporations | If a corporation expects to owe at least $500 in income tax for the year, estimated payments are required |
On the flip side, if you had no tax liability in the previous year, you usually don’t need to make estimated payments this year. For example, maybe you didn’t earn enough to owe taxes, or all your taxes were fully covered by withholding.
Estimated Tax Payment Due Dates for 2025
Estimated taxes aren’t paid once a year; they’re split into four installments, each tied to the period in which you earn the income. This system is the IRS’s way of making sure taxes are paid as you go, not just at filing time.
It’s important to note that the “quarters” used for estimated tax payments don’t perfectly match the traditional calendar quarters.
In fact, the IRS’s second quarter only spans two months, April and May, so its deadline comes earlier than you might expect.
| Income Period | Due Date |
| January 1 – March 31, 2025 | April 15, 2025 |
| April 1 – May 31, 2025 | June 16, 2025 (IRS reminder: the usual June 15 deadline shifts to June 16 in 2025) |
| June 1 – August 31, 2025 | September 15, 2025 |
| September 1 – December 31, 2025 | January 15, 2026 |
How to Calculate Estimated Taxes
Figuring out how much to pay in estimated taxes can feel intimidating at first, but it really comes down to a step-by-step calculation.
Here’s the process:
1. Estimate your total income for the year
Add up everything you expect to earn: wages (if you also have a job), self-employment or freelance income, rental income, interest, dividends, and any other taxable earnings.
2. Subtract deductions and credits
Factor in the deductions you’re eligible for (like the standard deduction, business expenses, or retirement contributions) and any tax credits (like child tax credit or education credits). This gives you your estimated taxable income.
3. Apply current tax rates
Use IRS tax tables or tax software to calculate how much federal income tax you’d owe on that income. Don’t forget self-employment tax if you’re working for yourself, which covers your Social Security and Medicare contributions.
4. Subtract withholding and credits
If you have a W-2 job on the side, your employer may already be withholding some tax. Subtract those withholdings and any refundable credits from your estimated tax liability.
5. Divide by four
Take the balance that’s left and split it into four equal quarterly payments. These are your estimated taxes.
Consider safe harbor rules.
- To avoid penalties, the IRS lets you pay the smaller of:
- 90% of your current year’s expected tax liability, or
- 100% of your prior year’s tax liability (110% if your adjusted gross income was over $150,000).
- This is called the “safe harbor” method, and it’s often easier than guessing your current year’s income.
6. Adjust for uneven or seasonal income
If your income isn’t steady (for example, if you make most of your money in the summer), you can use the annualized income method. This lets you pay more in the quarters when you earn more, and less when you earn less. It takes more math, but it prevents overpaying when income is lopsided.
| Example |
| Let’s say you expect to earn $60,000 in freelance income this year. After subtracting deductions, your estimated federal and self-employment taxes total about $9,000. If you have no withholdings, you’d divide that by four and send in $2,250 each quarter. |
How to Pay Estimated Taxes
Once you’ve figured out how much you owe, the next step is actually sending the payment to the IRS. The good news is, there are multiple ways to pay, ranging from fast and fully digital to the old-fashioned check-in-the-mail option.
Electronic payment (the fastest and most secure)
The IRS encourages taxpayers to pay electronically because it’s quick, secure, and you get immediate confirmation:
- IRS Online Account – Sign in to your IRS account to view balances, make payments, and track history.
- Direct Pay – Pay directly from your checking or savings account without extra fees.
- Credit, debit, or digital wallet – Use a card or wallet service like PayPal or Venmo. Keep in mind, the IRS-approved payment processors may charge a small processing fee for this method.
- EFTPS (Electronic Federal Tax Payment System) – A free service run by the Treasury Department. It requires a setup process, but once enrolled, you can schedule payments in advance. Corporations are required to use EFTPS for all federal tax deposits, including estimated tax.
- IRS2Go mobile app – The IRS’s official app lets you make payments directly from your phone.
Paper payment (traditional method)
If you prefer paper, you can mail a check or money order made payable to the “United States Treasury.” Be sure to include a Form 1040-ES payment voucher for the correct quarter so the IRS applies it properly. Mail it to the address listed in the 1040-ES instructions, which varies by state.
Step-by-step process with Form 1040-ES
- Calculate your estimated tax using the worksheet in Form 1040-ES.
- Choose your payment method (electronic or paper).
- If mailing, fill out the corresponding payment voucher in Form 1040-ES.
- Send your payment or submit it electronically by the quarterly due date.
- Keep records of each payment; you’ll need them when filing your annual return.
Corporations don’t have a choice here; all corporate estimated tax payments must be made electronically, usually through EFTPS.
Penalties for Underpayment or Failure to Pay Estimated Tax
Estimated taxes aren’t optional. If you owe them and don’t pay enough throughout the year, the IRS can impose penalties and interest. These penalties are meant to encourage taxpayers to keep up with their payments rather than waiting until April to settle up.
How penalties are calculated
If you don’t meet the safe harbor and underpay, the IRS may charge:
- A penalty of 0.5% per month (up to 25%) on the amount underpaid.
- Interest on the unpaid balance, which accrues until the payment is made in full.
Both the penalty and interest can add up quickly, especially if payments are missed for multiple quarters.
Why timely payments matter
The IRS treats estimated taxes as “pay-as-you-go.” Missing payments or paying too little can result in penalties even if you pay your full tax bill when you file your return. Staying on top of due dates and paying as accurately as possible helps you avoid these unnecessary costs.
Wrapping Up
Staying on top of estimated taxes may not be the most exciting part of running your business or freelancing career, but it’s one of the most important. Making accurate and timely payments keeps you in good standing with the IRS and ensures you won’t be blindsided by a massive tax bill when April rolls around.
That said, managing taxes, payroll, and compliance manually can feel like a full-time job. This is where tools like Keka make a huge difference. Keka goes beyond being just a payroll system; it automates salary disbursements, calculates taxes, and ensures compliance, so you never miss deadlines or make costly errors.
For businesses juggling employee payroll alongside estimated tax obligations, having a platform like Keka means less stress, more accuracy, and the confidence that both your team and the IRS are taken care of on time.
| Sign up for a Keka walkthrough today! |
FAQs
1. Can you pay an estimated tax at any time?
Yes, you can pay anytime, but payments must be made by the quarterly due dates to avoid penalties.
2. Common mistakes and how to avoid them?
Mistakes include underestimating income, missing deadlines, or forgetting self-employment tax. Use IRS Form 1040-ES, keep records, and set reminders to stay on track.
3. How do I know if I need to pay estimated taxes?
If you expect to owe $1,000+ after withholding and credits, or your withholding won’t cover 90% of this year’s tax (100%/110% of last year’s), you likely need to pay.
4. What IRS form is used for estimated tax payments?
Form 1040-ES, which includes worksheets and vouchers for mailing payments.
