Quarterly Tax Estimates: What You Need to Know

Who Needs to Pay Estimated Taxes?

If you earn income that isn't subject to withholding, there's a good chance you need to make quarterly estimated tax payments. The IRS expects you to pay taxes as you earn throughout the year — not just in one lump sum at filing time.

You'll generally need to make estimated payments if you expect to owe $1,000 or more in federal taxes after subtracting withholding and credits. This commonly applies to:

• Self-employed individuals and freelancers
• Small business owners (sole proprietors, partners, S-corp shareholders)
• Retirees with significant investment or retirement account income
• Landlords with rental income
• Anyone with substantial income not covered by employer withholding

South Carolina has its own estimated tax requirements as well. If you expect to owe $100 or more in state taxes, you'll need to make state estimated payments in addition to federal.

When Are Estimated Taxes Due?

Estimated taxes are paid four times a year, but the quarters aren't evenly spaced. Here are the typical federal due dates:

• Q1: April 15
• Q2: June 15
• Q3: September 15
• Q4: January 15 of the following year

If a due date falls on a weekend or holiday, the deadline shifts to the next business day. South Carolina estimated tax payments follow the same schedule.

How to Calculate Your Estimated Payments

There are two common approaches to figuring out how much to pay each quarter:

Prior year safe harbor: Pay at least 100% of last year's total tax liability, divided into four equal payments. If your adjusted gross income was over $150,000, the safe harbor increases to 110% of the prior year. This is the simplest method and protects you from underpayment penalties regardless of what you actually owe this year.

Current year estimate: Project your income for the year and calculate the tax you expect to owe, then divide by four. This method can result in lower payments if your income dropped, but it requires more accuracy — if you underestimate, you could face a penalty.

Many people use the prior year safe harbor for simplicity, then adjust their final Q4 payment once they have a clearer picture of the year's income.

What Happens If You Underpay?

If you don't pay enough throughout the year, the IRS may charge an underpayment penalty. The penalty is essentially interest on the amount you should have paid, calculated at the federal short-term rate plus 3 percentage points.

There are a few exceptions that can help you avoid the penalty:

• You owe less than $1,000 after subtracting withholding and credits
• You paid at least 90% of this year's tax liability
• You met the prior year safe harbor (100% or 110% of last year's tax)

South Carolina also charges penalties and interest on underpaid estimated taxes, so it's important to stay current on both your federal and state obligations.

Tips for Staying on Track

Estimated taxes don't have to be stressful. A few simple habits can help you stay ahead:

• Set calendar reminders at least a week before each due date so you have time to prepare.
• Open a separate savings account and set aside a percentage of each payment you receive. This way the money is there when it's time to pay.
• Review your estimates mid-year. If your income is tracking significantly higher or lower than expected, adjust your Q3 and Q4 payments accordingly.
• Work with a CPA. We can help you calculate accurate estimates based on your actual income, coordinate federal and state payments, and make sure you're not overpaying or underpaying.