Estimated Taxes Explained: When, Why, and How to Pay Quarterly"

For traditional employees, taxes are withheld automatically from each paycheck. But if you’re self-employed, earn freelance income, or receive income that doesn’t have taxes withheld (like investments or side hustles), the IRS expects you to pay taxes throughout the year, not just at tax time.

That’s where estimated taxes come in.

Failing to pay enough tax during the year can lead to underpayment penalties, interest, and an unpleasant surprise in April. In this guide, we’ll explain:

Who needs to pay estimated taxes
How to calculate your payments
When payments are due in 2025
Easy ways to stay compliant and avoid penalties

What Are Estimated Taxes?

Estimated taxes are periodic payments you make to the IRS (and sometimes your state) on income that’s not subject to withholding. This includes:

Self-employment or freelance income
Rental income
Interest and dividends
Alimony received (pre-2019 agreements)
Capital gains
Cryptocurrency gains
Gig work (Uber, Etsy, DoorDash, etc.)

If you earn income without withholding, the IRS considers it your responsibility to estimate your tax liability and pay as you go.

Who Needs to Pay Estimated Taxes?

You’re required to pay estimated taxes if both of the following apply:

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

For Example:
In 2025, you expect to owe $8,000 in tax and have no withholding.
You’ll need to make estimated tax payments totaling at least $7,200 (90% of $8,000) or risk penalties.

Who Typically Pays Estimated Taxes?

Freelancers and contractors (receive 1099-NEC or 1099-K forms)
Small business owners (sole proprietors, S corps, LLCs)
Side hustlers (reselling, rideshare, content creators)
Investors (stocks, crypto, real estate gains)
Landlords
Retirees with large IRA withdrawals or capital gains

Even if you also have a W-2 job, you may still need to pay estimated taxes if your side income is significant.

2025 Estimated Tax Due Dates.

Estimated taxes are paid quarterly — but the quarters aren’t evenly spaced. The 2025 due dates are:

Quarter	Income Covered	Due Date
Q1	Jan 1 – Mar 31	April 15, 2025
Q2	Apr 1 – May 31	June 16, 2025 (June 15 is a Sunday)
Q3	Jun 1 – Aug 31	September 15, 2025
Q4	Sep 1 – Dec 31	January 15, 2026

How to Calculate Estimated Taxes.

You can calculate your estimated tax using one of two approaches:

Method 1: Safe Harbor Rule (Last Year’s Tax)

Pay 100% of your 2024 tax liability, spread evenly across four payments (or 110% if your AGI was over $150,000).

Example:
If your 2024 total tax was $8,000
→ Pay $2,000 each quarter in 2025 to avoid penalties

This method is easiest and safest if your income is stable.

Method 2: Actual Income (Quarter-by-Quarter)

If your income is variable (common for freelancers and gig workers), you can calculate based on what you actually earned each quarter using Form 1040-ES.

Estimate your taxable income
Subtract deductions and credits
Calculate tax owed using 2025 IRS brackets
Divide by 4 (or base on actual earnings per period)

This method is more accurate, but riskier if your estimates are too low.

How to Make Estimated Tax Payments.

There are several easy ways to pay:

1. Online via IRS Direct Pay

Pay directly from a bank account — no fees
irs.gov/payments/direct-pay

2. Through Your IRS Online Account

View past payments and schedule upcoming ones
irs.gov/account

3. Using the IRS2Go App

Make payments on your mobile device

4. By Mail

Send a check with Form 1040-ES payment vouchers

5. Electronic Federal Tax Payment System (EFTPS)

More advanced system, often used by businesses
eftps.gov

*Tip: Always keep a copy or confirmation of your payments in case of IRS inquiries.

What Happens If You Don’t Pay?

The IRS may charge:

Underpayment penalties (based on how much and when you underpaid)
Interest on unpaid amounts
Late payment penalties (separate from underpayment)

These penalties are calculated quarterly so missing even one deadline can add up.

The safest way to avoid issues is to:

Use the safe harbor method
Pay at least 90% of your current year’s tax
Or 100–110% of last year’s tax

Common Mistakes to Avoid.

Assuming you don’t owe if you didn’t get a 1099
Forgetting that crypto gains count as taxable income
Only making one or two payments instead of all four
Ignoring quarterly payments if your side hustle income is growing
Not adjusting for new income mid-year (e.g., rental property, inheritance, business success)

What About State Estimated Taxes?

Most states with an income tax also require estimated tax payments. Check with your state’s Department of Revenue due dates and rules often align with the IRS, but thresholds may differ.

Tracking and Organizing.

Use tools to simplify recordkeeping and calculation:

QuickBooks Self-Employed
Keeper Tax
Wave Accounting
IRS Tax Withholding Estimator (for W-2 + side income)
irs.gov/individuals/tax-withholding-estimator

FAQ.

Q: Can I adjust payments later in the year?
A: Yes. If your income changes dramatically, you can adjust remaining payments accordingly.

Q: Do I have to use Form 1040-ES?
A: Not if you pay online. But it’s helpful for calculating what you owe and keeping records.

Q: What if I miss a payment?
A: Pay it as soon as possible. Interest and penalties are time-based, so quick action reduces what you owe.

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