Federal Estimated Payments

The IRS requires estimated tax payments if you expect to owe $1,000 or more when you file. Payments are due four times a year: April 15, June 15, September 15, and January 15. The amounts don’t have to be equal — if your income is uneven (which is common in entertainment and freelance work), you can use the annualized income installment method to match payments to when you actually earned the money.

The safe harbor is straightforward: pay 100% of last year’s tax liability (110% if your AGI exceeded $150,000) across four installments and you avoid penalties regardless of what you owe this year. We use whichever method — safe harbor or current-year estimate — results in the lowest payments without triggering penalties. For clients with lumpy income, the annualized method often saves real money compared to paying four equal installments based on a projection.

California Estimated Payments

California’s estimated payment schedule is different from the federal one, and it trips people up. The state requires 30% of the annual estimate in Q1 (April 15), 40% in Q2 (June 15), 0% in Q3, and 30% in Q4 (January 15). That’s right — there’s no September payment for California. But the Q2 payment is larger than Q1, which is the opposite of what most people expect.

The FTB’s underpayment penalty is calculated per quarter, and California does allow the annualized income installment method — it lives in Form 5805, Part III, and it works the same way as federal Form 2210, Schedule AI. For self-employed clients whose income concentrates in the back half of the year, running Part III can reduce or wipe out the FTB underpayment penalty even when the equal-installment method would have produced one. We compute it both ways and use whichever benefits the client. If you’re a high earner in California, the penalty for missing a payment can run several hundred dollars per quarter, so it’s worth doing the math. We calculate your California vouchers separately from your federal ones and send reminders before each due date so nothing slips.

When Estimated Taxes Apply

You need quarterly payments if you’re a freelancer, independent contractor, sole proprietor, or an S-corp owner taking distributions in addition to salary. Rental income, investment income, and side gig earnings also trigger the requirement if they push your total tax liability above the threshold.

One thing we see regularly: W-2 employees who start a side business or pick up freelance work forget that the withholding from their day job might not cover the additional tax. Rather than making estimated payments, it’s sometimes simpler to increase your W-2 withholding through an updated W-4. We’ll tell you which approach makes more sense based on your situation.

Sources & References

• IRS — About Form 1040-ES, Estimated Tax
• IRS — Small Business and Self-Employed Tax Center
• California FTB — Estimated Tax Payments
• California FTB — Form 5805 Instructions (Underpayment of Estimated Tax)