Quarterly payments for non-wage income
Self-employed individuals, freelancers, and others with income not subject to wage withholding must make estimated tax payments quarterly (typically mid-April, mid-June, mid-September, and mid-January). These amounts are calculated based on projected annual tax liability, including federal income tax, self-employment tax, and any other obligations.
The IRS requires 90% of current-year tax or 100% of prior-year tax to be paid quarterly to avoid penalties, even if the final tax bill is lower. For high-income taxpayers, the requirement rises to 110% of prior-year tax.
Penalties and adjustment mechanics
Underpayment penalties accrue quarterly at the federal rate plus 3%, compounding based on how late the payment was. Making accurate estimates is important, and significant life changes like a new business or large investment gains may require adjusting quarterly amounts mid-year.
Many tax software tools and accountants can help calculate quarterly amounts, and the IRS allows safe-harbor exceptions if income is uneven across the year. Overpayment simply results in a refund or credit to next year's estimate. Filing annual returns allows final true-up of all payments.