Who must pay quarterly estimated taxes?
The IRS expects estimated payments if you will owe at least $1,000 in tax after subtracting withholding and credits. This commonly applies to self-employed people, freelancers, investors, and retirees whose income is not subject to withholding.
What is the safe-harbor rule?
You generally avoid an underpayment penalty if you pay at least 90% of the current year's tax, or 100% of last year's tax (110% if your prior-year adjusted gross income exceeded $150,000), through withholding and estimated payments. Meeting the lower of these is the safe harbor.
When are estimated tax payments due?
For most taxpayers the four due dates are April 15, June 15, September 15, and January 15 of the following year. Payments are for the income earned in the preceding quarter, though the periods are not evenly spaced calendar quarters.
What is the penalty for underpaying estimated tax?
The IRS charges an underpayment penalty calculated as interest at the federal short-term rate plus 3%, applied to the shortfall for each period it remained unpaid. Meeting a safe harbor or paying evenly through withholding avoids it.