Estimated Taxes Explained
Who Must Pay Estimated Taxes
The IRS requires quarterly estimated tax payments if you expect to owe $1,000 or more in taxes for the year and your withholding does not cover at least 90% of your current year liability or 100% of last year's liability.
Most W-2 employees do not need to worry about this; their employer withholds taxes automatically. Freelancers, contractors, and business owners must handle it themselves.
The Quarterly Schedule
| Quarter | Income Period | Due Date |
|---|---|---|
| Q1 | Jan 1 - Mar 31 | April 15 |
| Q2 | Apr 1 - May 31 | June 15 |
| Q3 | Jun 1 - Aug 31 | September 15 |
| Q4 | Sep 1 - Dec 31 | January 15 (next year) |
How Much to Pay
The simplest method: set aside 25-30% of every freelance payment you receive. This covers federal income tax (15-22% for most freelancers), self-employment tax (15.3%), and state taxes (varies by state).
The precise method requires estimating your annual net income, subtracting deductions, and calculating tax liability using the current year's brackets. Most freelancers use the prior year safe harbor: pay 100% of last year's total tax bill in four equal installments.
Penalties for Underpayment
If you underpay by more than $1,000 or pay late, the IRS charges interest on the shortfall. The rate is the federal short-term rate plus 3%, adjusted quarterly. In 2026, expect roughly 8% annual interest on underpayments.
How to Pay
- Online: IRS Direct Pay (free) or EFTPS (Electronic Federal Tax Payment System)
- Phone: EFTPS voice response system
- Mail: Form 1040-ES vouchers with checks
Most accountants recommend paying online for instant confirmation and tracking.
Frequently Asked Questions
What if my income is unpredictable? Use the annualized income installment method. This lets you pay based on actual income received each quarter rather than equal estimates. It requires more paperwork but prevents overpaying during slow periods.
Do I need to pay state estimated taxes too? Most states with income tax require quarterly estimated payments. Check your state's Department of Revenue website for deadlines and forms.
What happens if I overpay? You receive a refund when you file your annual return, or you can apply the overpayment to next year's estimates.
The Bottom Line
Quarterly taxes are non-negotiable for freelancers. Set up a separate savings account, auto-transfer 25-30% of every payment, and pay on time. The peace of mind is worth the discipline.