Estimated Quarterly Taxes
Estimated quarterly taxes are periodic tax payments made four times per year by self-employed individuals and business owners to cover income tax and self-employment tax not withheld by an employer.
The U.S. tax system operates on a "pay as you go" basis. Employees have taxes withheld from each paycheck, but self-employed individuals and business owners must make their own payments throughout the year using IRS Form 1040-ES.
Quarterly payments are due on April 15, June 15, September 15, and January 15 of the following year. Despite the name "quarterly," the periods are not evenly spaced — the second payment covers only two months.
You're generally required to make estimated payments if you expect to owe $1,000 or more in taxes after subtracting withholding and credits. To avoid underpayment penalties, you must pay either 90% of your current year tax liability or 100% of your prior year liability (110% if your AGI exceeds $150,000).
The "safe harbor" rule is particularly useful: if you pay 100% (or 110%) of last year's total tax through estimated payments, you cannot be penalized regardless of how much you owe in April. This is the simplest approach for business owners with variable income.
Many states also require estimated tax payments with their own due dates and rules. Missing state estimated payments can result in separate penalties.
Practical Example
Alex earned $200,000 last year and paid $50,000 in total tax. This year he expects to earn more. To use the safe harbor, he makes four estimated payments of $13,750 each (110% of $50,000 / 4 = $13,750). Even if he owes more in April, he won't face underpayment penalties.