Estimated Tax Payments: Who Must Pay, How Much & When

If you are self-employed, an independent contractor, freelancer, or have significant income without tax withholding, the IRS generally requires you to make quarterly estimated tax payments.
Failure to do so can lead to penalties and interest.

IRS Tax Code Reference

Internal Revenue Code (IRC) §6654 governs the requirement for individuals to pay estimated income tax on a quarterly basis when taxes are not fully withheld by an employer.

Relevant IRS Forms:

• Form 1040-ES  Estimated Tax for Individuals
• Schedule SE (Form 1040)  for self-employment tax
• Form 2210  Underpayment of Estimated Tax (to calculate penalty if applicable)

Who Must Make Estimated Tax Payments?

You are generally required to make estimated tax payments if:

• You expect to owe at least $1,000 in tax for the year after subtracting withholding and credits.
• Your withholding and refundable credits will be less than the smaller of:
  • 90% of your 2025 total tax, or
  • 100% of your 2024 total tax (110% if your adjusted gross income was over $150,000).

These rules ensure you pay taxes as you earn income a core principle of the U.S. tax system.

How to Calculate Estimated Payments

Steps:

1. Estimate your total income for 2025, including self-employment, interest, dividends, and any other taxable income.
2. Calculate expected deductions, credits, and exemptions.
3. Determine your expected income tax, self-employment tax, and other taxes.
4. Subtract any tax credits or expected withholding.
5. Divide the balance due by four to find each quarterly payment amount.

Use IRS Form 1040-ES worksheets for detailed calculations.

Due Dates for 2025 Estimated Taxes

Note: If a due date falls on a weekend or legal holiday, the payment is due the next business day.

Example:

Scenario:

• Estimated total 2025 taxable income: $120,000
• Estimated tax owed: $25,000
• No withholding.

Quarterly estimated payment:

• $25,000 ÷ 4 = $6,250 per quarter

You would need to pay $6,250 each by the deadlines listed.

Step-by-Step Compliance Checklist

1. Complete Form 1040-ES Worksheet to calculate estimated taxes.
2. Set up Electronic Federal Tax Payment System (EFTPS) for easy online payments.
3. Mark quarterly deadlines clearly on your calendar.
4. Adjust payment amounts if your income changes significantly mid-year.
5. Keep records of all payments made for year-end reconciliation on Form 1040.

Conclusion

Meeting quarterly estimated tax payment requirements is critical to avoid IRS penalties and interest.
If you are self-employed, have rental income, investments, or other non-wage earnings, proactive planning is essential.

Work with a qualified CPA to make sure your payments are accurate and timely.

Schedule a meeting with Anshul Goyal, CPA to discuss your estimated tax payment strategy for 2025:
https://calendly.com/anshulcpa/

FAQs

Q1: How do I know if I need to pay estimated taxes?
If you expect to owe $1,000 or more in taxes after credits and withholding, estimated payments are likely required.

Q2: Can I adjust estimated payments mid-year?
Yes, you can revise your quarterly payments if your income or deductions change significantly.

Q3: What happens if I miss a quarterly payment?
You may owe an underpayment penalty, calculated using Form 2210.

Q4: Are retirement account withdrawals considered in estimated taxes?
Yes, taxable withdrawals must be included when estimating your annual tax liability.

Q5: How can I avoid underpayment penalties?
Pay at least 90% of your current year’s tax or 100% (110% for high earners) of last year’s tax.

About Our CPA

Anshul Goyal, CPA, EA, FCA, is a licensed Certified Public Accountant in the United States. He is admitted to practice before the IRS as an Enrolled Agent and represents clients in tax disputes and compliance matters. As a cross-border tax expert, Anshul specializes in helping American businesses and Indian individuals living in the U.S. manage their IRS obligations strategically.