Written by Samuel, Certified Public Accountant
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If you are self-employed or otherwise have income with no withholding, such as freelance work, rental income, or investment gains, the IRS expects you to pay tax on it as you earn it, not all at once in April. That is what quarterly estimated payments are for, and missing them can trigger an underpayment penalty even if you pay everything you owe by the filing deadline.
Who Actually Has to Pay Quarterly
Generally, you need to make estimated payments if you expect to owe at least $1,000 in tax for the year after subtracting withholding and credits. This catches most self-employed people, along with anyone with significant investment income, rental income, or a side business that does not have tax withheld.
The 2026 Due Dates
- Q1: April 15, 2026
- Q2: June 15, 2026
- Q3: September 15, 2026
- Q4: January 15, 2027
Payments are made with Form 1040-ES, either by mail or, more commonly now, through IRS Direct Pay or EFTPS.
The Safe Harbor Rule That Protects You
You avoid the underpayment penalty entirely if your withholding and estimated payments together equal at least:
- 90% of the tax you will actually owe this year, or
- 100% of what you owed last year (110% if last year’s adjusted gross income was over $150,000, or $75,000 if married filing separately), whichever of the two is smaller.
The prior-year test is the one worth knowing, because it uses a number you already have, last year’s actual tax liability, instead of forecasting a year you have not finished yet. Pay in 100% (or 110%, if you are above the AGI threshold) of last year’s total tax, split across four payments, and you are penalty-proof no matter how much more you end up making this year.
A Practical Way to Set This Up
Take last year’s total tax liability from your filed return, apply the 100%/110% test based on your AGI, and divide by four. Set that amount aside, ideally in a separate account, as income comes in, and send it in on each due date. If your income drops significantly from last year, you can instead calculate 90% of your actual current-year liability using Form 1040-ES’s worksheet, which may be a smaller number.
Bottom Line
Quarterly estimated taxes are not optional once you cross the $1,000 threshold, but the safe harbor rule gives you a completely predictable way to avoid penalties: pay 100% (or 110% for higher earners) of last year’s tax bill in four equal installments, and the IRS cannot penalize you regardless of how this year turns out.
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