Tax Tips
The United States tax system is pay-as-you-go. Employees satisfy that through withholding. Everyone else — the self-employed, landlords, retirees taking distributions, investors with large gains — has to do it themselves, four times a year.
Who has to pay
Broadly, you owe estimated payments if you expect to owe a meaningful amount when you file after subtracting withholding and refundable credits. The threshold is low enough that most self-employed people cross it in their first profitable year, often without realising it until the penalty appears.
The four dates
- April 15 — for income earned January through March
- June 15 — for April and May
- September 15 — for June through August
- January 15 — for September through December
Note that the quarters are not equal. Two of them are two-month periods. This trips up people who divide the year into neat thirds.
The safe harbours
You avoid an underpayment penalty if you pay in either a high enough percentage of the current year’s tax or a set percentage of the prior year’s tax, whichever you prefer. The prior-year route is the useful one: last year’s number is already known, so you can compute the four payments in January and stop thinking about it. Higher earners face a higher prior-year percentage — confirm which applies to you.
How to actually pay
Pay directly through the IRS online account or the Electronic Federal Tax Payment System. Both give you a record with a timestamp, which is what you want if a payment is ever misapplied. Vouchers by post work but leave you proving delivery. State payments are separate, through your state’s own portal.
The withholding shortcut
Withholding is treated as paid evenly across the year no matter when it happens. So if you have a job alongside self-employment income, increasing withholding late in the year can cure an underpayment for earlier quarters in a way that a late estimated payment cannot. This is one of the most useful and least known fixes in the whole system.
Uneven income
If your income arrives in bursts — a consultant with two large projects, a business with a seasonal peak — the annualised income installment method lets you match payments to when the money actually came in, instead of paying a quarter of the year’s tax in April on income you have not earned yet. It requires a schedule with the return, and it is usually worth the extra form.
Stop overpaying
A large refund is not a win. It is an interest-free loan to the government, made in instalments, by someone who could have used the cash. Once your estimates are landing close to the mark, revisit them annually and adjust rather than repeating last year’s figures out of habit.
Want this reviewed against your own return?
Bring last year’s return to a consultation and we will tell you, plainly, whether anything on this page applies to you.
