WalletPrep worksheet · Work and income

How do quarterly estimated taxes work?

Name ____________________ Date __________

Key ideas

Four due dates, roughly every quarter. April 15, June 15, September 15 and January 15. A weekend or holiday moves the date to the next business day.
Last year's tax is your safe number. Pay at least 100% of last year's total tax (110% if your income was over $150,000) and the penalty won't apply.
Under $1,000 owed means no penalty. If you will owe less than $1,000 after withholding and refundable credits, you don't have to make estimated payments.

Vocabulary

Estimated tax payments: Tax you send the IRS yourself during the year, usually in four payments, on income that has no tax withheld, like freelance or gig pay.
Self-employment tax: Social Security and Medicare tax for people who work for themselves. It is 15.3% on 92.35% of net profit, on top of income tax.
Tax withholding: Income tax your employer takes out of each paycheck and sends to the IRS for you, as a prepayment of your yearly tax.
Refundable tax credit: A tax credit that is paid to you as a refund when it is bigger than the tax you owe.
Safe harbor rule: The IRS rule that you won't owe an underpayment penalty if you paid at least 90% of this year's tax or 100% of last year's, whichever is smaller.
Adjusted gross income: Your total income for the year minus a short list of adjustments, like deductible IRA contributions and student loan interest. Many tax rules and programs use it.

Work it out

Priya freelances as a designer and works one shift a week at a shop. Last year's total tax was $9,600. She expects $1,200 to be withheld from her shop paychecks this year.

Last year's total tax
Withholding from her job
Left to pay by estimates
Payments in the year
Each quarterly payment
April and June
September and January
Paid by estimates

Check yourself

Last year's total tax was $6,000 and no tax is withheld this year. What quarterly payment meets the 100% safe harbor?
- A. $1,000
- B. $1,500
- C. $2,000
- D. $6,000
Which of these is usually NOT a federal estimated tax due date?
- A. April 15
- B. June 15
- C. September 15
- D. December 15
Who usually does not need to make estimated tax payments?
- A. Someone whose tax owed after withholding will be under $1,000
- B. A full-time freelancer with steady clients
- C. A gig driver with no other job
- D. A landlord with rental profit and no withholding

Your turn

Find the total tax line on last year's Form 1040, subtract any withholding you expect this year, and divide by 4. Put the four due dates in your calendar and open a separate savings account for tax money.

Answer key

How do quarterly estimated taxes work?

Work it out

Last year's total tax$9,600
Withholding from her job− $1,200
Left to pay by estimates= $8,400
Payments in the year4
Each quarterly payment$2,100
April and June$2,100
September and January$4,200
Paid by estimates= $8,400

Priya takes the total tax line from last year's Form 1040, $9,600, and subtracts the $1,200 her job will withhold: $9,600 − $1,200 = $8,400.
She splits it into 4 equal payments: $8,400 ÷ 4 = $2,100, due in April, June, September and January.
Her income last year was under $150,000, so 100% of last year's tax is her safe harbor. If she earns more this year, she may owe more at filing, but no penalty.

Check yourself

B. $1,500 $6,000 ÷ 4 = $1,500 per payment. Paying 100% of last year's tax on time avoids the penalty when last year's income was $150,000 or less.
D. December 15 The fourth payment is due January 15 of the following year, not in December.
A. Someone whose tax owed after withholding will be under $1,000 If you expect to owe less than $1,000 after withholding and refundable credits, the estimated tax rules generally don't require payments.