What Happens When You Don’t Pay Estimated Taxes During the Year?

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The quick answer? It depends on how much you owe. 

If you’ve ever been a salaried employee, you probably noticed that the paychecks that hit your bank account month after month didn’t represent your total earnings, but rather, your earnings after taxes were withheld. When you’re self-employed, that doesn’t happen. Rather, it’s on you to make sure you’re paying taxes on your income.

You can’t just wait until you file your tax return to pay those taxes, though. Just as salaried employees pay taxes as they earn money, so too does the IRS want you to pay taxes along the way if you’re self-employed. And the IRS expects you to pay those taxes once a quarter by a preset deadline. If you don’t, you could end up being penalized.

Don’t set yourself up to lose money

The IRS wants you to pay taxes as you go, and if you’re late with an estimated quarterly tax payment, you could face penalties. You could also face penalties for paying too little tax when you make your estimated quarterly payments, which is why it’s generally a good idea to work with an accountant or tax professional to calculate those payments for you.

Usually, you’ll avoid a penalty for underpaying your estimated taxes as long as you send the IRS money on a quarterly basis and owe less than $1,000 at the end of the year. You can also avoid being penalized for underpaying your taxes if you pay the IRS at least 90% of your tax liability for the year, or 100% of what you paid in taxes last year.

As an example, let’s say you paid $20,000 in estimated taxes this year, or $5,000 per quarter, but you were supposed to pay the IRS $22,000. Because $20,000 is a little over 90% of what you were supposed to pay, you generally won’t be penalized in that situation — but you will have to pay the IRS the remaining $2,000 you owe.

Similarly, if you paid and owed $20,000 in taxes last year and paid that same amount this year, that, too, will generally get you out of being penalized — even if that $20,000 is a little shy of what you owe.

When are estimated taxes due?

The deadline for submitting estimated taxes can change slightly from one year to the next, but generally, those payments are due by mid-April, mid-June, mid-September, and mid-January of the following year. For 2023, estimated taxes have to be paid by:

April 18June 15Sept. 15Jan. 16, 2024

The reason you get until January to pay your final tax bill is that you may not receive all of your earnings until the very end of the year. The IRS recognizes that if you first get paid for a given project or invoice on Dec. 31, you won’t necessarily be able to calculate your tax bill and pay it by that date, so you get a little more time once the year is over.

If you’re self-employed, it’s very important that you put these dates on your calendar so you aren’t late. Another option, if your income is fairly steady throughout the year, is to set up your estimated tax payments to go out automatically once a quarter. That way, you won’t have to think about it and risk missing any of these deadlines.

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