What Are Quarterly Tax Payments, Who Needs to Make Them, and Why?
For many taxpayers, taxes are withheld automatically from each paycheck. But not everyone pays taxes that way. If you earn income without enough withholding, you may need to make quarterly tax payments, also called estimated tax payments.
Understanding what quarterly tax payments are, who needs to make them, and why they matter can help you avoid surprises, penalties, and last-minute stress.
What Are Quarterly Tax Payments?
Quarterly tax payments are estimated payments made to the IRS during the year on income that is not subject to enough withholding. Instead of waiting until tax season to pay the full amount, eligible taxpayers generally pay in four installments throughout the year.
Estimated tax is commonly used to pay tax on income such as self-employment income, gig work, freelance income, interest, dividends, rents, and other income that may not have taxes withheld automatically.
Who Needs to Make Quarterly Tax Payments?
In general, individuals may need to make estimated tax payments if both of the following apply:
- You expect to owe at least $1,000 in tax for the current year after subtracting withholding and refundable credits
- You expect your withholding and refundable credits to be less than the required safe-harbor amount under IRS rules
This often applies to:
- Self-employed individuals
- Freelancers and independent contractors
- Gig workers
- Small business owners
- Landlords with rental income
- Taxpayers with significant investment income
- People with side income that does not have tax withholding
Why Do Quarterly Tax Payments Matter?
The U.S. tax system generally works on a pay-as-you-go basis. That means taxpayers are expected to pay tax during the year as income is earned, either through withholding or estimated tax payments.
If you wait until you file your annual return and have not paid enough during the year, you may owe a large balance and could also face an underpayment penalty.
Making quarterly tax payments can help you:
- Avoid underpayment penalties
- Spread your tax bill out over the year
- Manage cash flow more effectively
- Reduce the chance of a large tax surprise at filing time
What Income Usually Triggers Estimated Tax Payments?
Taxpayers may need estimated tax payments when income is earned without enough withholding. Common examples include:
- Self-employment income
- 1099 income
- Gig economy earnings
- Interest and dividends
- Capital gains
- Rental income
- Royalty income
For many self-employed taxpayers, quarterly estimated payments are especially important because there is no employer withholding taxes from each payment received.
When Are Quarterly Tax Payments Due?
For estimated tax purposes, the year is divided into four payment periods, and each period has its own due date. Missing a due date can result in a penalty, even if you later receive a refund when you file your return.
Because due dates can shift when they fall on weekends or holidays, it is important to verify the current year’s deadlines before paying.
How Do You Make Quarterly Tax Payments?
Individuals generally use Form 1040-ES to figure and pay estimated taxes. The IRS also allows taxpayers to make estimated tax payments online, by phone, through the IRS2Go app, or by mail when applicable.
If your income changes during the year, you may be able to adjust future estimated payments rather than continuing with the same amount each quarter.
Can You Avoid Quarterly Payments by Increasing Withholding?
In some cases, yes. Taxpayers who also receive wages may be able to increase withholding from a paycheck instead of making separate estimated payments. This can sometimes be a practical alternative for people with both W-2 income and side income.
What Happens If You Do Not Pay Enough?
If you do not pay enough tax during the year through withholding or estimated payments, the IRS may charge an underpayment penalty. The IRS explains that even taxpayers expecting a refund may still face a penalty if they did not pay enough by each required due date.
Final Thoughts
Quarterly tax payments are a key part of staying compliant if you earn income without enough withholding. They are commonly required for self-employed individuals, freelancers, gig workers, investors, landlords, and others with untaxed income.
If you are unsure whether you need to make estimated tax payments or how much to pay, Phoenix Financial can help you evaluate your situation and stay on track throughout the year.
Need help with quarterly tax payments? Contact Phoenix Financial today at 1-855-469-1627.