Are Quarterly Estimates Right For You?
With tax season in full swing a common question people have is: “Should I be making quarterly tax payments?”
The answer? It depends. It isn’t the same for everyone. Some people absolutely should be paying estimates. Others don’t need to think about them at all.
Let’s expand on this and walk through who needs quarterly estimates — and who probably doesn’t.
First: What Are Quarterly Estimated Tax Payments?
Quarterly estimated payments are prepayments you send to the IRS (and often your state) throughout the year instead of waiting until April.
They’re typically due on or around: April 15, June 15, September 15, January 15 (of the following year)
The purpose is simple:
The IRS expects you to pay taxes as you earn income, not just once per year. If you don’t pay enough during the year — either through withholding or estimates — you may face penalties. But that doesn’t mean everyone needs to make quarterly payments.
If You Work a W-2 Job, You Probably Don’t Need Estimates
If you’re an employee receiving a W-2 and that’s primarily all your income:
- Taxes are automatically withheld from your paycheck.
- Social Security and Medicare are already handled.
- Federal and state income taxes are withheld each pay period.
In this case, quarterly estimates are usually unnecessary. If your withholding is too low, the fix isn’t quarterly payments — it’s updating your Form W-4. Adjust your paycheck withholding so the correct amount is taken out automatically. It’s simpler and usually cleaner than writing quarterly checks.
If You Own an S-Corp and Pay Yourself a Salary
This is another area of confusion.
If you:
- Own an S-Corporation
- Pay yourself a reasonable W-2 wage
- Withhold taxes through payroll
You may not need quarterly estimates either.
Why?
Because your payroll withholding counts as tax paid during the year — just like any other employee.
Now, if your S-Corp profits are large and your withholding isn’t sufficient, you might need supplemental estimates. But many S-Corp owners can solve this by simply increasing payroll withholding instead of making quarterly payments separately.
That’s often cleaner and easier to manage.
If You File Schedule C (Sole Proprietor)
This is where quarterly estimates become much more relevant.
If you operate as a sole proprietor, receive 1099 income, and have no taxes withheld from payments you are responsible for income tax and self-employment tax (Social Security + Medicare). Since nothing is automatically withheld, if you wait until April to pay everything, you may owe a large balance, face underpayment penalties, and potentially struggle with cash flow shock.
For most Schedule C business owners, quarterly estimates are smart and often necessary.
If You’re in a Partnership
Partnership income (K-1 income) also comes without withholding.
Partners typically owe income tax and self-employment tax (if active in the business).
Since no tax is automatically withheld, estimates are usually appropriate unless you’re covering the liability elsewhere through payroll withholding.
If You Have Significant Investment Income
Another group that often forgets about estimates are those with significant passive income items such as interest income, dividends, capital gains, or rental income. These income streams typically do not have taxes withheld automatically.
If investment income is small, it may not matter; however, if it’s substantial, you may need to either increase W-2 withholding (if you have a W-2 job) or begin paying quarterly estimates. Otherwise, April can come with a surprise bill.
A Better Question: Do You Need Quarterly Payments — or Just More Withholding?
Here’s something many people don’t realize:
The IRS doesn’t care whether taxes are paid through payroll withholding or quarterly estimates. They just care that enough is paid during the year. For many people, increasing W-2 withholding is easier than managing quarterly payments. Additionally, W-2 withholding is treated as evenly spread throughout the year, regardless of when actual withholding occurs, whereas estimates are applied in the period paid.
Quarterly payments are often most useful when there is no payroll system involved, income fluctuates significantly, there’s no practical way to adjust withholding.
Safe Harbor Rules (Why Timing Matters)
To avoid penalties, you generally need to pay in during the year the lesser of:
- 100% of last year’s total tax (110% if higher income), or
- 90% of the current year’s total tax
If you meet those thresholds through withholding or estimates, penalties are typically avoided. This is why planning ahead matters. Waiting until March to think about taxes is usually too late.
To Sumarize
Situations Where Quarterly Estimates Are Usually Appropriate
- Sole proprietors (Schedule C)
- Active partners in partnerships
- High investment income with no withholding
- Farmers who won’t file by March 1
- Anyone expecting a large tax bill with no payroll withholding
Situations Where Quarterly Estimates Are Often Not Necessary
- W-2 employees with adequate withholding
- S-Corp owners properly running payroll with sufficient withholding
- Individuals whose investment income is minor relative to withholding
- Farmers who will file before March 1
- Anyone meeting safe harbor requirements via payroll
How to Decide What’s Right for You
Ask yourself:
- Is tax being withheld automatically from my income?
- Will I owe significantly more this year than last year?
- Do I have income streams with no withholding?
- Did I owe a large balance last year?
If you answered yes to several of those, it may be time to plan estimates.
If not, adjusting withholding might be all you need.
Concluding Thoughts
Quarterly estimates are a tool — not a requirement for everyone. Employees with proper withholding often don’t need them. Business owners without withholding often do. The key is planning before year-end. If you’re unsure whether you should adjust withholding, begin estimates, or rely on safe harbor rules, reach out. A quick review can usually prevent an expensive April surprise.
— Brendan Tiedeman, CPA, CVA
