Who Must Pay Estimated Taxes?

The basic rule

You must pay estimated taxes if both of the following are true:

• You expect to owe at least $1,000 in federal taxes for the year after subtracting withholding and credits
• Your withholding and credits will cover less than 90% of this year's tax liability, or less than 100% of last year's tax liability (110% if your prior year AGI exceeded $150,000)

If either condition isn't met, you're generally not required to pay estimated taxes — though you may still choose to do so to avoid a surprise bill at filing time.

Who typically has to pay

Freelancers and independent contractors

If you receive 1099-NEC income for services — writing, design, consulting, photography, coding, or any other freelance work — no one is withholding taxes on your behalf. You're responsible for paying both income tax and self-employment tax (15.3% on net self-employment income) through quarterly payments.

Self-employed business owners

Sole proprietors, single-member LLC owners, and partners in a partnership all pay estimated taxes on their business income. If your business is profitable, you almost certainly need to make quarterly payments.

Landlords and rental income earners

Rental income is not subject to self-employment tax, but it is subject to income tax. If your net rental income pushes your total tax liability above the $1,000 threshold and your withholding doesn't cover it, you need to make estimated payments.

Investors with capital gains or dividends

Selling investments, receiving significant dividends, or exercising stock options can generate a large unexpected tax bill. If these events create a tax liability above $1,000 that your withholding won't cover, estimated payments are required for the quarter in which the income was received.

W-2 employees with significant side income

Having a day job doesn't exempt you from estimated taxes if you also have substantial income outside that job. If your side business, freelance work, or rental income creates a tax gap that your W-2 withholding doesn't cover, you need to address it — either through quarterly payments or by increasing your W-4 withholding at your employer.

Who does NOT have to pay

You are generally not required to pay estimated taxes if:

• You had no tax liability last year (you owed $0 and received a refund or broke even)
• You expect to owe less than $1,000 after withholding and credits
• Your W-2 withholding covers at least 90% of this year's total tax
• You were a U.S. citizen or resident for the full prior tax year

The W-2 withholding workaround

If you have a W-2 job and side income, there's a simpler alternative to making quarterly payments: increase your W-4 withholding at your day job. File a new W-4 with your employer and enter an additional dollar amount on Step 4(c). This extra withholding covers your side income tax, eliminating the need for separate quarterly payments entirely.

Many people find this easier than tracking quarterly deadlines. The downside is that you're effectively giving the IRS an interest-free loan — but for simplicity, it's hard to beat.

Special situations

Retirees: Pension income, Social Security (if taxable), and required minimum distributions from IRAs and 401(k)s can all require estimated tax payments if withholding isn't set up on those accounts.

Farmers and fishermen: Special rules apply. You may make a single annual estimated payment by January 15, or file your full return and pay in full by March 1.

Nonresident aliens: Different rules and forms apply. Consult a tax professional.