Unlike taxpayers who earn a salary or wage and have taxes withheld—that is, taken out of their paychecks—taxpayers who are self-employed need to make estimated tax payments on Form 1040-ES to Uncle Sam to stay caught up on their taxes. Taxpayers who might need to make estimated payments include:

  • Freelancers
  • Those with business income like owners of pass-through businesses, such as partnerships, LLCs, or S corporations.
  • Individuals with significant earned income from other sources like a trust.

The Internal Revenue Service (IRS) requires estimated taxes for the current year to be paid every quarter, and if business owners risk underpayment and don’t stay on top of these estimated payments, they may get hit with penalties for late payment.

So make sure you don’t miss a deadline, and file form 1040-ES to report your payments to the IRS.

Who, exactly, needs to use Form 1040-ES?

In general, the IRS says that if the following two conditions apply to you, you should use Form 1040-ES to make estimated tax payments:

  1. You expect to owe at least $1,000 in taxes for 2023  after accounting for taxes withheld from other sources and tax credits that can reduce your overall tax liability.
  2. You expect your withholding and refundable credits to be less than :
    • 90 percent of the tax on your 2023 return, or
    • 100 percent of your tax on your prior year 2022 tax return.

Don’t worry, we walk tax filers through all of this below.

Most business owners who don’t pay themselves a salary need to make estimated tax payments; same with freelancers who receive 1099s from their clients. In both of those situations, taxes are not withheld and turned over to federal and state government agencies.

When are estimated tax payments due?

When are estimated tax payments due?

You can pay all of your estimated tax on Tax Day or in four equal installments throughout the year. If you choose to pay in installments, the first quarterly tax payment due date is when you file your return (no later than April 18 for 2023) and should be 25 percent of the total.

If you underpay the total, any of the installments, or fail to pay tax on time, penalties and interest could be assessed on top of your tax liability, even if you have an overpayment on your return, so it’s important to make the estimate as accurate as possible. Here’s what the 2023 tax year payment schedule looks like:

1st paymentApril 18, 2023
2nd paymentJune 15, 2023
3rd paymentSeptember 15, 2023
4th paymentJanuary 16, 2024

If you file your 2023 tax return and pay the balance due by January 31, 2024, you do not have to make the final estimated income tax payment on January 16.

How do I calculate my estimated tax on Form 1040-ES?

IRS Form 1040-ES has an estimated tax worksheet for figuring out your total taxes due and, if you’re making installment payments, what that first installment should be. 

Form 1040-ES - 2023

Lines 1 to 11

This worksheet starts with your Adjusted Gross Income (AGI). For calculating that, refer to ”Expected AGI—Line 1” in chapter 2 of IRS Publication 505. If you’re self-employed, also account for the self-employment tax deduction. Use the “2023 Self-Employment Tax and Deduction Worksheet for Lines 1 and 9 of the Estimated Tax Worksheet” on page 6 of the 1040-ES form to figure out the amount to subtract when calculating your expected AGI to enter on line 1 of the estimated tax worksheet. This worksheet will also give you the amount to enter on line 9 of that worksheet.

Next, you’ll need to subtract:

  • Either the standard deduction or your itemized deductions, whichever is greater (line 2a), and
  • The 20 percent deduction for taxpayers who qualify for it (line 2b).

This results in your estimated taxable income on line 3, and tax due on line 4.

Good news! All the standard deduction amounts increased for 2023:

IF your 2023 filing status is…

THEN your standard deduction is…

Married filing jointly or qualifying surviving spouse: $27,700

Head of household: $20,800

Single or married filing separately: $13,850

From there, other taxes such as the alternative minimum tax (line 5) and self-employment tax (line 9) are added to determine your total taxes due, and credits (line 7) are then applied to reduce that total to arrive at “Total 2023 estimated tax” on line 11c.

Note: See the 2022 Form 1040 or 1040-SR, line 19, and Schedule 3 (Form 1040), lines 1 through 6z, and the related instructions for the types of nonrefundable credits allowed. They include:

Here are the formulas for figuring out your total estimated tax:

How to calculate your total estimated tax

Adjusted Gross Income expected in 2023

  • Standard Deduction OR Itemized Deductions
  • 20 percent of Qualified Business Income (if applicable)

___________________________________________

= Estimated taxable income

Estimated taxable income x Applicable tax rate = Estimated tax due

Estimated tax due

+ Alternative minimum tax (if applicable)

– Non-refundable tax credits (i.e. can only reduce tax liability to zero)

+ Self-employment taxes (if applicable)

___________________________________________

= Total taxes due

Total taxes due

– Refundable tax credits (i.e. can reduce tax liability to less than zero)

___________________________________________

= Total estimated tax

Lines 12 to 15

The next section determines whether you actually need to make estimated tax payments.

As a recap, you only need to do so if both of the following are true:

  • You expect to owe $1,000 or more in 2023 taxes.
  • You expect your tax withholding and refundable credits to be less than 90 percent of your 2023 tax or 100 percent of your 2022 tax, whichever is smaller.

Here’s a quick example to illustrate how it works. Let’s assume:

  • You expect to owe more than $1,000 in taxes in 2023.
  • You expect $10,000 of withholding and credits in 2023.
  • You expect your total 2023 taxes will be $9,500.
  • The taxes due on your 2022 income tax return totaled $11,000.

In this case, condition 1 is met because you expect to owe more than $1,000 in taxes for 2023. Because your expected 2023 tax amount of $9,500 is smaller than your 2022 taxes of $11,000, that’s the number we use for condition 2. And because $10,000, the expected total of withholding and credits, is not less than 90 percent of $9,500 (i.e. $8,550), the taxpayer in this scenario would not need to make an estimated payment.  

Now, if everything remains the same except the total taxes due in 2023 were $20,000, then 90 percent of that would be $18,000, which is greater than the expected withholding of $10,000. In this case, the taxpayer would have to make an estimated payment.

Whew! That calculation gets us down to line 15 of the worksheet, where your estimated payment will be one-fourth of line 14a, if you’re making your payments quarterly.

And while you may not be too thrilled that you have to make an estimated payment, at least you’ve conquered another IRS form. That’s no small feat.

How to pay estimated taxes

Some of the options for making federal income tax payments include:

  • Going directly to IRS.gov/Payments for debit card, credit card, or digital wallet payments. You can use direct pay here, too, withdrawing from your bank account, but this option is for individuals not businesses.
  • Accessing IRS.gov/Account to make a payment or apply for a payment plan. This option is also for individuals not businesses.
  • Setting up an account with the Electronic Federal Tax Payment System (EFTPS). You’ll need to register with an employer identification number (EIN) or your Social Security number (SSN), if you don’t have an EIN.You can also enroll in EFTPS by calling 800-555-4477. For people who are deaf, hard of hearing, or have a speech disability, dial 711 and then provide the TRS assistant the 800-555-4477 number above or 800-733-4829. Learn more about EFTPS in IRS Publication 966.
  • Paying by phone with a debit or credit card, using one of these service providers:
  • Using a mobile device to download and pay through the IRS2Go app.
  • Using the payment vouchers at the bottom of the 1040-ES form for checks or money orders, payable to “United States Treasury,” sent via mail with the US Postal Service. Before sending your payments with the vouchers, write your social security number and “2023 Form 1040-ES” on your check or money order in the memo area. For each quarterly payment, make sure you use the voucher with the right due date, found in the upper right corner of the vouchers. Don’t staple or attach the payments to the vouchers. If you file separate tax returns with a spouse, file separate vouchers instead of a joint voucher. When completing each voucher, print or type your name, address, and SSN in the space provided on the estimated tax payment voucher. If filing a joint voucher, also enter your spouse’s name and SSN, listing the names and SSNs in the same order on the joint voucher as you will list them on your joint return. In the box provided, add the amount you are sending in by check or money order, factoring in any 2022 overpayment that you choose to credit against your 2023 tax, but don’t include the overpayment amount in this box.

If mailing your payments with a check or money order, here is where to file your estimated tax payment vouchers:

IF you live in . . .

THEN send it to . . .

Alabama, Arizona, Florida, Georgia, Louisiana, Mississippi, New Mexico, North Carolina, South Carolina, Tennessee, Texas

Internal Revenue Service
P.O. Box 1300
Charlotte, NC 28201-1300

Arkansas, Connecticut, Delaware, District of Columbia, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Missouri, New Hampshire, New Jersey, New York, Oklahoma, Rhode Island, Vermont, Virginia, West Virginia, Wisconsin

Internal Revenue Service
P.O. Box 931100
Louisville, KY 40293-1100

Alaska, California, Colorado, Hawaii, Idaho, Kansas, Michigan, Montana, Nebraska, Nevada, Ohio, Oregon, North Dakota, Pennsylvania, South Dakota, Utah, Washington, Wyoming

Internal Revenue Service
P.O. Box 802502
Cincinnati, OH 45280-2502

A foreign country, American Samoa, or Puerto Rico (or are excluding income under Internal Revenue Code 933), or use an APO or FPO address, or file Form 2555 or 4563, or are a dual-status alien or nonpermanent resident of Guam or the US Virgin Islands

Internal Revenue Service
P.O. Box 1300
Charlotte, NC 28201-1300

Guam: Bona fide residents*

Department of Revenue and Taxation
Government of Guam
P.O. Box 23607
GMF, GU 96921

US Virgin Islands: Bona fide residents*

Virgin Islands Bureau of Internal Revenue
6115 Estate Smith Bay
Suite 225
St. Thomas, VI 00802

*Bona fide residents must prepare separate vouchers for estimated income tax and self-employment tax payments. Send the income tax vouchers to the address for bona fide residents and the self-employment tax vouchers to the address for non-bona fide residents.

What else should I think about?

One important thing to remember: If you’re making quarterly estimated payments to the feds, you probably should be making quarterly payments to your state, too. The obvious exception to this would be if you live in one of the nine states that don’t have an income tax.

Also, if you’re a business owner or freelancer and all this estimated tax payments stuff seems like more than you want to deal with, you may want to think about paying yourself a salary and having taxes withheld from your paycheck. For tax filing, you’ll need to consider a few factors unique to your business, including:

If you’ve thought about all these things and have determined it’s a good fit, it may be easier to get a paycheck and let the payroll process take care of your taxes for you.

Ultimately, if you plan to freelance or start a business, estimated tax payments are almost certainly in your future. If you haven’t taken the leap yet, talk with your CPA or other tax professional and familiarize yourself with tax form 1040-ES so that you don’t miss a beat with your tax preparation.

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