How Quarterly Estimated Taxes Work
The IRS requires self-employed workers and those without withholding to pay taxes four times a year. The safe harbor rule lets you avoid underpayment penalties by paying based on prior year's tax.
- Standard safe harbor: pay 100% of prior year's federal tax in 4 equal installments
- High-income safe harbor: pay 110% of prior year's tax if prior year AGI > $150,000
- Alternative: pay 90% of current year's actual liability
Self-employment tax (15.3%) is also due with estimated payments. Use IRS Form 1040-ES to track and remit quarterly payments.
Frequently Asked Questions
What happens if I miss a quarterly payment?
The IRS charges an underpayment penalty based on the federal funds rate plus 3%. Even small underpayments incur penalties, so timely payment is important.
Can I adjust my payments mid-year?
Yes. If your income is higher or lower than expected, you can adjust Q3 and Q4 payments. The IRS uses the annualized income installment method to accommodate uneven income.