What Are Estimated Tax Payments and Who Has to Make Them?

Tax Planning

Estimated tax payments are quarterly tax payments made directly to the IRS on income that is not subject to automatic withholding. You generally need to make them if you expect to owe at least $1,000 in federal tax for the year and your withholding will not cover at least 90% of your current-year liability or 100% of last year's (110% if your prior-year AGI was over $150K).

If you are a W-2 employee with a single income source, your employer handles this for you through paycheck withholding. The estimated tax system exists for everyone else: business owners, founders with equity comp, retirees taking portfolio distributions, real estate investors, and anyone with significant capital gains.

When are estimated tax payments due?

Federal estimated taxes are due four times per year, but the schedule is not evenly spaced. The deadlines are April 15, June 15, September 15, and January 15 of the following year.

Quarter	Income period	Payment due
Q1	Jan 1 to Mar 31	April 15
Q2	Apr 1 to May 31	June 15
Q3	Jun 1 to Aug 31	September 15
Q4	Sep 1 to Dec 31	January 15

The June and September deadlines fall short of a full quarter, which catches a lot of people off guard. If a deadline falls on a weekend or holiday, payment moves to the next business day.

How do you calculate estimated tax payments?

The two safe-harbor methods are the prior-year method and the current-year method. The prior-year method pays 100% of last year's total tax (or 110% if AGI was over $150K), divided into four equal installments. The current-year method pays 90% of what you actually owe this year.

Most high earners use the prior-year safe harbor because it is predictable. You take last year's total federal tax bill, multiply by 110%, divide by four, and pay that amount each quarter regardless of how this year is going. If you owe more at filing time, you pay the difference, but you avoid underpayment penalties.

What is the underpayment penalty?

The IRS underpayment penalty is calculated as interest on the amount you should have paid each quarter but didn't, at the federal short-term rate plus 3%. As of early 2026 that runs roughly 8% annualized.

The penalty is not catastrophic on small underpayments, but it compounds. A founder who realized $2M in capital gains in Q1 and didn't make a Q1 estimated payment can owe several thousand dollars in penalty by April even if the full tax is paid on time.

Do I need to make state estimated tax payments?

If you live in a state with income tax, yes, and the rules are usually parallel to the federal rules but vary by state. Texas, Florida, Tennessee, Nevada, and a handful of others have no state income tax, so this only matters at the federal level for residents of those states.

For California, New York, and other high-tax states, the underpayment penalty machinery is its own beast and worth a dedicated review with your CPA.

How do you actually make the payment?

The cleanest way is IRS Direct Pay at irs.gov, which lets you schedule payments from a bank account with no fee. Alternatively you can pay by debit card, credit card (with a fee), or mail a check with Form 1040-ES.

The Electronic Federal Tax Payment System (EFTPS) is the system used by businesses and is also free, but it requires advance enrollment.

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