Estimated Tax Penalty Basics

As an individual taxpayer, you can get hit with a non-deductible penalty if you fail to pay enough federal income tax in advance, via withholding and/or timely estimated tax payments.

If you are self-employed, operate your business as an S corporation, or are a partner in a partnership, you likely need to make quarterly estimated tax payments. If you fail to make enough payments on time, you may face a penalty.

You may also need to make quarterly payments if you have other forms of income. For instance, you could have investment income from taxable investments, pension income, taxable social security benefits, taxable retirement withdrawals, or rental income with no or insufficient federal income tax withholding. 

Exceptions to the estimated tax penalty

Some exceptions allow you to minimize or avoid the penalty for underpayment of estimated tax.

• Current year tax exception - There’s no penalty when you pay at least 90 percent of your current year’s tax [including self-employment tax], via timely estimated tax payments. 

• Prior year tax exception - There’s no penalty when you pay at least 100% of the tax shown on your previous tax return. However, if your adjusted gross income (AGI) on your prior year return exceeded $150,000 [$75,000 if you use married filing separately for the current year), you must pay 110 percent of the tax shown on your prior year return to avoid the penalty under this exception. 

• Annualized Income Installment Method - If your income is not evenly distributed throughout the year, this exception may apply.  However, calculating the penalty is not straightforward. It will need to be calculated using Form 2210 on your tax return.

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Estimated Tax Due Dates

If you use the calendar year for federal income tax purposes, the due dates for quarterly estimated tax payments for your 2025 tax year are April 15th, 2025; June 16th, 2025; September 15th, 2025; and January 15th, 2026. 

What are the best ways to pay?

The best way for an individual taxpayer to make quarterly estimated federal income tax payments depends on convenience, security, and record-keeping preferences. Here are the most effective methods:

1. Online Payment through IRS Direct Pay. [Best for taxpayers who want a simple, fast, and secure option.]

   • This site is free to use

   • You get immediate confirmation of payment

   • It is easy to schedule payments ahead of time

2. Pay via IRS2Goapp. [Best for tech-savvy taxpayers who prefer mobile transactions.]

• You can make payments through direct pay or a debit/credit card

• Same features as IRS Direct Pay

  3. Mail a check or money order. [Best for taxpayers who prefer traditional methods]

• With this option, you risk delays in processing or having your mail lost.

• There is also no immediate confirmation of payment.

Recommended Method: For most individuals, IRS Direct Pay is the best option because it is secure, free, and offers immediate payment confirmation. This method also provides excellent record-keeping, which is critical for tax compliance and audit purposes.