Most people are used to taxes being withheld directly from their paycheck. But for many taxpayers, especially those with self-employment income, high earnings, or significant investment gains, the IRS requires quarterly estimated tax payments. Understanding who needs to make these payments, why they matter, and how to manage them is essential to avoiding IRS tax penalties and staying financially organized.

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Who Needs to Make Quarterly Tax Payments?

Quarterly tax payments apply to more people than you might think. You may be required to make estimated tax payments if:

• You are self-employed. Freelancers, contractors, and small business owners don’t have taxes withheld by an employer, so you are responsible for paying self-employed taxes directly.
  
  
• You earn a high income without sufficient withholding. Even W-2 employees may need to make quarterly payments if their employer is not withholding enough.
  
  
• You realize large capital gains. Selling investments such as stocks, real estate, or a business can trigger taxable income beyond what withholding covers.
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‍Why Pay Quarterly Instead of Waiting Until Tax Time?

It can be tempting to wait until April to settle up, but there are two major advantages to paying quarterly:

1. Avoiding IRS penalties. The IRS expects taxes to be paid as income is earned. Failing to make estimated payments can result in underpayment penalties and interest.
   
   
2. Managing cash flow. Breaking your tax bill into four installments helps spread out the burden, making it easier to budget and plan for other financial goals.
   
   

We’ve seen firsthand the impact a surprise tax bill can have on a family. Financial goals are delayed, credit cards maxed out, and hard-earned savings quickly disappear. Quarterly tax payments create predictability and reduce the chance of a tax-time surprise.

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Who Pays Underpayment Penalties?

A common misconception is that underpayment penalties only apply to people who are self-employed. In reality, any taxpayer who doesn’t have enough tax paid in throughout the year can face penalties.

• W-2 employees can be penalized if their employer isn’t withholding enough from their paycheck. This often happens with people who earn bonuses, commissions, or investment income in addition to their salary.
  
  
• Married couples may run into issues if one spouse has W-2 income with withholding, but the other is self-employed and not making estimated payments. The IRS looks at the household’s total tax liability, not just each spouse individually.
  
  
• High earners with significant investment or capital gains income may also face penalties if withholding alone doesn’t cover the required amount.
  
  

Example: Sarah earns a salary as a W-2 employee, and her employer withholds taxes from her paycheck. Her spouse, Alex, runs a small business and earns self-employment income but doesn’t make quarterly estimated tax payments. At tax time, the IRS views their combined income as one household. Because Alex didn’t make estimated payments, and Sarah’s withholding wasn’t enough to cover the full tax liability, they end up owing underpayment penalties—despite Sarah having taxes withheld regularly.

💡 Quick Tip: Couples in this situation can often avoid penalties by either (1) having the W-2 spouse adjust their paycheck withholding to cover both partners’ tax obligations, or (2) ensuring the self-employed spouse makes quarterly estimated payments. A financial advisor (like the ones at Fyooz FP!) or tax professional can help determine the best approach based on cash flow and household income.

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Safe Harbor Rules to Avoid Penalties

The IRS provides safe harbor rules that allow taxpayers to avoid underpayment penalties if certain conditions are met:

1. Pay at least 90% of the current year’s tax liability through withholding and estimated payments.
   
   
2. Pay 100% of last year’s tax liability (110% if your adjusted gross income was over $150,000 for the prior year).
   
   

Meeting either of these safe harbors ensures you won’t owe penalties. This is especially useful for high-income households or those with fluctuating income. However, it doesn’t mean you will fully satisfy your tax obligation.

At Fyooz Financial Planning, we’ve seen that avoiding penalties doesn’t always mean a client is fully on track. Many tax professionals focus on preventing underpayment penalties but don’t provide a full picture of total tax obligations. A client may think they’re on target, paying quarterly estimates provided by their accountant, only to face a large tax bill because their financial situation has changed.

That’s why it’s crucial to keep your financial team updated throughout the year. We meet regularly with clients to incorporate these updates into their financial plan, helping prevent surprises and keeping goals on track.

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When Are Quarterly Tax Payments Due?

Quarterly payments are not exactly every three months, which often causes confusion. Here are the official quarterly tax deadlines:

• April 15 – for income earned January 1 to March 31
  
  
• June 15 – for income earned April 1 to May 31
  
  
• September 15 – for income earned June 1 to August 31
  
  
• January 15 (of the following year) – for income earned September 1 to December 31
  
  

If a due date falls on a weekend or holiday, the payment is due the next business day. Staying on top of these deadlines helps you avoid last-minute stress and late payment penalties.

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How to Make Quarterly Tax Payments

The IRS provides several ways to pay estimated taxes:

• Direct Pay: Make a payment directly from your bank account at IRS Direct Pay.
  
  
• EFTPS: The Electronic Federal Tax Payment System allows you to schedule and track payments.
  
  
• By mail: Mail a check with Form 1040-ES, though electronic payments are faster and more secure.
  
  
• Through tax software or your accountant: Many tax preparation platforms can calculate and submit payments for you.
  
  

Don’t forget about your state obligations! Each state will have their own method of payments as well. We direct our clients to pay online through their state’s secured website. No matter which method you choose, keep confirmation records for your tax and financial planning files.

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The Role of Your Financial Advisor

Managing quarterly estimated payments is not just about compliance, it’s also about tax planning. A proactive financial advisor should:

• Run tax projections to estimate your liability and help you pay the correct amount.
  
  
• Coordinate with your CPA or tax professional to align quarterly payments with your overall strategy.
  
  
• Help manage cash flow so tax payments don’t interfere with other financial goals like saving or investing.
  
  

If your advisor isn’t helping you navigate quarterly tax payments, it may be time to find a team, like Fyooz Financial Planning, who integrates tax planning into your overall financial strategy.

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Final Thoughts

Keeping up with quarterly tax obligations is a key part of a successful financial plan. By making estimated tax payments throughout the year, you can avoid IRS penalties, stay on top of cash flow, and reduce stress when tax season arrives.

Working with a financial advisor who understands tax strategy—and coordinates with your accountant—can make the process seamless and ensure you stay on track for long-term success.

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Disclaimer: This article is for informational purposes only and is not a recommendation of Fyooz Financial Planning, Natalie Slagle CFP®, or Daniel Slagle CFP®. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment or financial planning strategy. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.

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