If you’re self-employed or earn income without tax withholding, you’re likely required to pay quarterly estimated taxes. Missing these payments can result in penalties and interest charges from the IRS, but don’t panic—you have options to correct the situation and avoid bigger financial consequences. Here’s what you need to know about quarterly taxes, potential penalties, and how to get back on track.
Who Needs to Pay Quarterly Estimated Taxes?
The IRS requires individuals and businesses to pay taxes on income as they earn it. If you receive a steady paycheck from an employer, taxes are automatically withheld. However, if your income comes from self-employment, freelancing, gig work, rental properties, or investments, you must make estimated tax payments.
You generally need to pay quarterly taxes if you expect to owe at least $1,000 in taxes when you file your return. These payments are due on the following dates each year:
- April 15 (for income earned January–March)
- June 15 (for April–May)
- September 15 (for June–August)
- January 15 of the following year (for September–December)
Why People Miss Quarterly Tax Payments
Many individuals fail to make quarterly tax payments because they:
- Aren’t aware of the requirement. New freelancers and business owners may not realize they need to pay.
- Underestimate their income. If income fluctuates, it’s easy to miscalculate estimated taxes. Additionally, understanding tax laws and keeping up with changing regulations can cause added stress.
- Don’t have enough cash flow. Some businesses struggle with inconsistent revenue, and freelancers often live invoice-to-invoice.
- Forget the deadlines. Without reminders, it’s easy to overlook payment dates.
Regardless of the reason, missing payments can lead to IRS penalties and interest charges.
Penalties and Interest for Missed Payments
The IRS imposes various penalties and interest fees for missed or underpaid quarterly taxes. Here’s what you could face:
- Underpayment penalty. If you don’t pay enough throughout the year, the IRS may charge a penalty of 0.5% of the unpaid amount per month, up to 25% of the balance. When you complete your annual tax return, the underpayment will be reported, and the IRS will apply the penalty to the amount you owe.
- Late payment penalty. If you miss a deadline, you may owe an additional 0.5% per month until you pay in full.
- Failure-to-file penalty. If you don’t file a tax return on time, the penalty is 5% of the unpaid tax per month, up to 25%.
- Interest fees. The IRS also charges interest on unpaid taxes, which compounds daily until the tax is paid in full. It is 8% for tax year 2024.
What to Do If You Missed a Payment
If you’ve missed a quarterly payment, take action immediately:
- Calculate what you owe. Use IRS Form 1040-ES or an online tax calculator to estimate your outstanding balance.
- Pay as soon as possible. Even a partial payment can help reduce penalties and interest. The IRS accepts payments online at IRS.gov.
- File your tax return on time. Avoid additional failure-to-file penalties by ensuring your annual return is submitted before April 15.
- Request penalty relief. If this is your first time missing a payment, you may qualify for the IRS First-Time Penalty Abatement. You can also request a payment plan if you can’t pay in full.
How to Avoid Future Penalties
To prevent tax issues going forward, consider these strategies:
- Set aside taxes regularly. Allocate 20-30% of your income for estimated taxes.
- Automate your payments. Use the IRS’s Electronic Federal Tax Payment System (EFTPS) to schedule payments.
- Adjust your estimates. If your income changes, adjust your quarterly tax payments to avoid over- or underpaying.
- Work with a tax professional. An accountant or tax preparer can help you stay compliant and minimize tax liability.
