What Are the Requirements to Pay Estimated Taxes?

The U.S. income tax system operates on a pay-as-you-go basis, meaning you are required to pay tax on your income as you earn it throughout the year. For most employees, this is handled automatically through employer withholding from paychecks. However, if you receive income not subject to withholding, you may need to make quarterly estimated tax payments to the IRS. This applies to individuals who are self-employed or have other sources of income such as from interest, dividends, capital gains, or rental properties.

Who Must Pay Estimated Taxes for 2025

You must pay estimated taxes if you expect to owe at least $1,000 in tax for 2025 after subtracting your withholding and any refundable credits. This $1,000 threshold is a primary trigger for the estimated tax requirement. If your expected tax bill, minus what you have already paid through withholding, is less than this amount, you are not required to make estimated payments.

In addition to the $1,000 rule, you must make estimated payments if your withholding and credits are expected to cover less than a certain percentage of your total tax liability for the year. The specific percentages are part of the calculation methods used to determine your required payment and avoid penalties.

Calculating Your Required Payment

The most direct method to calculate your payment is to estimate your tax liability for the current year, 2025. This involves projecting your total expected income, subtracting applicable deductions to find your estimated taxable income, and then calculating the tax due. From this amount, you would then subtract any tax credits you expect to claim and any income tax you expect to have withheld.

The worksheet included in Form 1040-ES, Estimated Tax for Individuals, guides you through this step-by-step process. To complete this worksheet, you will need to gather your expected Adjusted Gross Income (AGI), any planned itemized deductions or your standard deduction amount, and any tax credits you anticipate receiving. The form helps you arrive at your total estimated tax for the year, which is then divided into four quarterly payments.

An alternative is the “safe harbor” rule, which relies on your prior year’s tax information and provides protection from underpayment penalties. To use this method, your required annual payment must be the smaller of two amounts: 90% of the tax that will be on your 2025 return, or 100% of the tax that was on your 2024 return. For the 100% rule to apply, your 2024 tax return must cover a full 12-month period.

A special provision exists for taxpayers with higher incomes. If your AGI on your 2024 tax return was more than $150,000 ($75,000 if you were married and filing separately), the 100% threshold is increased to 110%. Using the safe harbor rule simplifies the process because it does not require you to predict your 2025 income and deductions.

How and When to Make Payments

After calculating the amount of your estimated tax, you must submit the payments according to a set schedule. For the 2025 tax year, the year is divided into four payment periods, each with a specific due date.

The payment for income received from January 1 to March 31 is due on April 15. The second payment, for income earned between April 1 and May 31, is due on June 16. The third payment covers income from June 1 to August 31 and is due on September 15. The final payment for the year, covering income from September 1 to December 31, is due on January 15, 2026.

The IRS offers several methods for submitting your estimated tax payments.

• Pay online through IRS Direct Pay, which allows you to make a payment directly from your checking or savings account at no cost.
• Use the Electronic Federal Tax Payment System (EFTPS), a free service provided by the Treasury Department that allows for online payments or payments by phone.
• Mail a check or money order payable to the “United States Treasury” with a payment voucher from Form 1040-ES to the address specified in the form instructions.
• Pay by phone or using the IRS2Go mobile app with a debit card, credit card, or digital wallet, though this service is provided through third-party payment processors that may charge a fee.

Understanding the Underpayment Penalty

Failing to pay enough estimated tax throughout the year can lead to an underpayment penalty. This penalty is applied if you paid less than the amount required by the safe harbor rules. The penalty functions as an interest charge on the amount you underpaid for the duration it was late.

The IRS calculates this penalty separately for each payment period. This means you could owe a penalty for an earlier quarter even if you paid enough tax later in the year to make up for the shortfall. The penalty is computed on Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts.

The penalty rate can fluctuate quarterly, as it is based on the federal short-term interest rate plus a set percentage. For instance, the interest rate for underpayment for the first quarter of 2025 was 8%. The penalty may be waived if the failure to pay was due to a casualty, disaster, or other unusual circumstance. Waivers may also be granted for taxpayers who retired after reaching age 62 or became disabled during the tax year, provided the underpayment was due to reasonable cause.