One of the most common questions we get from clients, especially entrepreneurs, investors, and anyone with income not fully covered by W-2 withholding, is: “How do quarterly estimated tax payments work?”

If you’re running a business, freelancing, investing in rental property, or earning income outside of a regular paycheck, quarterly estimated tax payments can be a little confusing. But once you get the hang of them, they’re a straightforward way to stay on top of your tax obligations and avoid costly penalties.

In this guide, we’ll answer some of the most frequently asked questions we hear about quarterly taxes—when they’re required, how to calculate them, how to pay them, and how we help our clients stay on track.

 

What Are Quarterly Estimated Tax Payments?

Quarterly estimated tax payments are prepayments made to the IRS, and to state tax agencies where applicable, to cover income tax liability that isn’t being fully withheld.

This applies to:

• Self-employed individuals
• Business owners
• Freelancers and gig workers
• Investors with dividend or rental income
• Anyone with untaxed income streams (such as capital gains or partnership income)

If you don’t have enough taxes withheld through payroll, you’re generally expected to make quarterly payments to cover your tax liability as you earn income throughout the year.

 

Who Needs to Make Estimated Tax Payments?

In general, you need to make estimated payments if both of the following apply:

• You expect to owe at least $1,000 in federal income tax after subtracting withholding and credits.
• Your withholding will cover less than 90% of your current-year tax or less than 100% of your prior-year tax (110% for high earners).

For state taxes, each state has its own rules and thresholds, but most follow a similar framework. For example, California, New York, and Illinois all require quarterly estimates if you meet certain income levels.

It’s also important to note that:

• S-corporation income flows through to the owners. This means S-corp shareholders typically need to make estimated payments on their share of the business income.
• Partnerships do not pay income tax at the entity level. However, partners may still need to make estimated payments on their share of the partnership’s income.
• On the state level, even if the entity itself doesn’t owe federal income tax, it may owe state-level taxes. For instance, Illinois imposes a replacement tax, while California requires franchise taxes or LLC fees depending on the business structure.

When Are Federal Estimated Tax Payments Due?

Federal estimated tax payments are due on a quarterly schedule:

• April 15 (Q1)
• June 15 (Q2)
• September 15 (Q3)
• January 15 of the following year (Q4)

If a deadline falls on a weekend or legal holiday, it rolls forward to the next business day.

 

Do States Require Quarterly Estimated Payments?

Yes, many states require quarterly estimated payments as well. The deadlines often line up with federal dates, but each state has its own nuances in terms of filing requirements and payment thresholds.

For example:

• California requires estimated payments if you expect to owe more than $500 ($250 if married filing separately).
• New York uses similar thresholds, with additional rules for partnerships and S-corporations.
• Illinois has both individual estimated payment requirements and a replacement tax for certain entities.

It’s critical to understand the specific requirements in your state to avoid unexpected penalties.

 

How Are Estimated Payments Calculated?

Quarterly estimated payments are typically calculated using one of two methods: the Safe Harbor Method or the Current-Year Projection Method. With the Safe Harbor Method, you pay 100% of your prior year’s total tax liability (or 110% if your adjusted gross income was over $150,000). This approach helps you avoid underpayment penalties, even if you end up owing more at year-end. Alternatively, the Current-Year Projection Method bases your payments on your expected income and deductions for the current year. While this method can result in smaller payments and improved cash flow, it requires regular updates if your income fluctuates throughout the year.

 

What Happens If You Underpay?

The IRS assesses an underpayment penalty if you don’t pay enough tax throughout the year, even if you pay your full tax bill by April. This is why making timely and accurate quarterly payments is so important.

 

Get Expert Help with Your Quarterly Tax Estimates

Staying on top of your quarterly tax estimates helps you avoid penalties, manage cash flow, and stay in control of your tax liability year-round. But calculating the right amounts and keeping up with changing tax rules can be challenging.

If you’d like expert support with your quarterly tax planning, schedule your free tax planning session. We’ll help you stay compliant, optimize your payments, and free up your time to focus on growing your business.