Estimated Taxes for Individuals and Businesses

This article will help to understand the concept of estimated tax payment and covers who must pay, how much to pay, due dates, calculation methods, and penalties. The U.S. tax system is built on a “pay as you go” principle, which means that income taxes must be paid throughout the year as income is earned. For most employees, this happens through withholding from their paychecks.

However, if you’re self-employed, own a business, or receive income not subject to withholding (such as investments, rental income, or dividends), you may need to make quarterly estimated tax payments to the IRS.

Failing to do so can result in penalties and interest, even if you pay the full amount when filing your return.

Individuals

You generally must make estimated tax payments if both of these apply:

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

• Your withholding and credits will be less than the smaller of:

  90% of your current year’s total tax, or

  100% of your prior year’s tax (110% if your adjusted gross income last year was over $150,000, or $75,000 if married filing separately).

Example:

2024 tax owed = $15,000.

Prior year’s tax = $12,000.

Your withholding = $2,000.

You must make estimated payments because you expect to owe more than $1,000. To avoid penalties, you must pay either:

90% of $15,000 = $13,500, or

100% of $12,000 = $12,000 (110% if high-income).

Since $12,000 is less, paying that amount in timely installments will protect you from penalties, even if you owe at filing.

Tax Withholding Estimator Tax Withholding Estimator | Internal Revenue Service

Businesses (Corporations)

Corporations must make estimated payments if they expect to owe $500 or more in tax for the year.

They generally must pay 100% of the expected tax liability in four equal installments. Unlike individuals, corporations cannot use the 90% safe harbor; instead, they must pay 100% of the current year’s liability unless they qualify for a small exception based on prior-year income.

Individuals (including sole proprietors, partners, and S corp shareholders):

• Use Form 1040-ES to calculate estimated taxes.

• Payments should include income tax, self-employment tax, and any alternative minimum tax (if applicable).

• Safe harbor rules protect you from penalties as long as you pay the required minimum.

Corporations:

• Use Form 1120-W for calculations.

• Must divide the estimated tax evenly over four quarters unless annualized income allows different allocations.

Payment Deadlines

Estimated tax payments are made four times per year.

Quarter	Period Covered	Due Date (Calendar Year Filers)
1st	Jan 1 – Mar 31	April 15
2nd	Apr 1 – May 31	June 15
3rd	Jun 1 – Aug 31	September 15
4th	Sep 1 – Dec 31	January 15 (next year)

If the due date falls on a weekend or holiday, it moves to the next business day. Corporations with non-calendar fiscal years follow similar rules, but due dates adjust based on their fiscal quarters.

How to Make Payments

You may send estimated tax payments with Form 1040-ES by mail, or you can pay online, by phone or from your mobile device using the IRS2Go app. You can also make your estimated tax payments through your online account, where you can see your payment history and other tax records. Go to IRS.gov/account.

Businesses can now make most common business tax payments, including estimated taxes and federal tax deposits, through their business tax account or Direct Pay for businesses. Some business tax payments must still be made through the Electronic Federal Tax Payment System (EFTPS).

If you don’t pay enough tax throughout the year, you may face an underpayment penalty. Many self-employed professionals set aside 25–30% of income into a separate tax savings account and make quarterly payments to avoid surprises at year-end.