Estimated Tax Payments
Quarterly prepayments of income tax made directly to the IRS by taxpayers whose income is not fully covered by withholding, including investors with significant capital gains, dividends, or other investment income.
The U.S. tax system operates on a pay-as-you-go basis, meaning taxes are generally due throughout the year as income is earned rather than in a lump sum at filing time. For wage earners, employers handle this through withholding. But investors, self-employed individuals, and retirees often receive income that is not subject to withholding — such as capital gains, dividends, interest, rental income, and freelance payments — and must make estimated tax payments to satisfy the IRS.
Estimated taxes are paid in four quarterly installments with deadlines that typically fall in mid-April, mid-June, mid-September, and mid-January of the following year. For the 2025 tax year, the due dates are April 15, June 16, September 15, and January 15, 2026. Missing these deadlines can trigger an underpayment penalty even if you pay the full balance owed with your April return.
To avoid the underpayment penalty, taxpayers must generally pay at least the smaller of (a) 90% of the current year's tax liability or (b) 100% of the prior year's tax liability (110% for taxpayers whose prior-year AGI exceeded $150,000). The second safe harbor — paying 100% or 110% of the prior year's tax — is particularly useful for investors who realize unexpectedly large capital gains during the year, because it provides certainty about the minimum payment required regardless of how large the actual liability turns out to be.
Investors who realize large capital gains late in the year — such as from selling a stock in December — may find themselves owing a large fourth-quarter estimated payment. Strategic planning includes spreading taxable events across quarters when possible, or adjusting withholding from wages or pension income to cover investment income (IRS rules allow year-end withholding adjustments to be treated as if spread evenly across the year, which can cure an earlier quarters underpayment).
Estimated payments are made using IRS Form 1040-ES or paid electronically through the IRS Direct Pay system or EFTPS. Taxpayers in states with income taxes generally must also make separate quarterly estimated payments to their state revenue agency, though state deadlines and safe harbor rules may differ from the federal rules.