Here’s What Happens When You Don’t Submit Quarterly Taxes Before June 15

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If you don’t file your quarterly taxes before June 15, you’ll owe the IRS more money. Learn how to navigate quarterly taxes before the deadline. 

If you’re self-employed or own a small business and you expect to owe $1,000 in federal income taxes this year, then you have to pay estimated quarterly taxes. The next deadline for quarterly taxes is this Thursday, June 15. If you don’t pay estimated taxes by then — or you underpay — the IRS may penalize you. Let’s take a look at what happens when you don’t pay quarterly taxes and what you can do to remedy the situation.

What happens if you miss the June 15 deadline?

If you miss the June 15 deadline, the IRS will charge you a late penalty of 0.5% of whatever is due. For instance, if you miss paying an estimated tax of $4,000 on June 15, you’ll owe 0.5% of $4,000, or $20.

What’s more is that you’ll owe 0.5% for each month or part of the month you leave those taxes unpaid. The penalty caps off at 25% of your unpaid tax.

So if you wait until July to pay an estimated tax of $4,000, then you’ll pay a penalty of $20 for June and $20 for July. If you wait 50 months, then you would owe 25% of $4,000, or $1,000.

You can stop the penalty from accumulating by paying your estimated taxes as soon as you can, preferably before June ends. And no — you can’t roll this quarter’s taxes into next quarter’s payment. The IRS will still charge you a penalty, even if you pay double your estimated taxes by the next deadline (Sept. 15).

Does the IRS charge a penalty for underpaying your taxes?

Here’s another scenario: Let’s say you owe $4,000 in estimated taxes. You pay your quarterly taxes by June 15, but instead of paying $4,000, you pay $3,000. Would the IRS still penalize you even though you paid by the deadline?

Yes, yes it would. And unfortunately the penalty for underpayments can be just as severe as not paying at all.

If you underpay your taxes, you’ll owe the IRS interest on whatever you don’t pay. Right now, the interest rate for underpayments is 7%, which is applied to the unpaid balance. The IRS will send you a letter with the penalty amount calculated for you. You’ll then need to pay the balance by the due date, or risk having the penalty compounded even more.

Some taxpayers, however, won’t pay penalties on underpayments. Basically, if your tax situation falls into one of two groups, the IRS won’t hit you with a penalty:

You owe less than $1,000 after withholdings and credits. You’ve paid at least 90% of this year’s taxes or 100% of last year’s taxes, whichever is less.

For example, if your tax bill last year was $24,000, and you’ve paid at least $24,000 this year in estimated taxes, then you can breathe — the IRS will likely forgive an underpayment. Likewise, if you owe only $500 this year, then the IRS won’t penalize you for underpaying an estimated tax.

How to avoid quarterly tax penalties

The simplest way to avoid tax penalties is to set aside a fixed percentage of your income as you earn money, then pay whatever you’ve saved as your estimated quarterly tax. For instance, I always take 29% of whatever I earn as a freelancer and set it in a high-yield savings account. I never touch this money until it comes time to pay my federal and state taxes.

If your tax situation is more complicated than quarterlies, you might want to hire an accountant. They can help you get the numbers right and ping you when it’s time to make estimated payments.

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