Self-employed individuals and business owners who expect to owe $1,000 or more in federal tax for the year must pay estimated taxes quarterly. Missing or underpaying estimated taxes results in penalties—not large ones, but entirely avoidable ones.
When to Pay
The four quarterly estimated tax payment due dates are April 15, June 15, September 15, and January 15 of the following year. These dates are fixed regardless of when during the quarter you earned the income. Missing a payment date means interest accrues from the missed due date.
How Much to Pay
To avoid underpayment penalties, you must pay the lesser of (a) 100% of your prior year's tax liability (110% if your adjusted gross income exceeded $150,000), or (b) 90% of your current year's tax liability. The safe harbor based on prior year tax is easiest to use because you know the number—it is the total tax on last year's return divided by four.
Key Takeaways
- Pay the lesser of 100% of prior year tax (110% if AGI > $150K) or 90% of current year tax to avoid penalties.
- Four due dates: April 15, June 15, September 15, January 15.
- Underpayment penalties currently run around 8%—small but entirely avoidable.
