Estimated Tax Payment Deadlines, Penalties & Interest Rates for 2023

If you’re required to make estimated tax payments to the IRS, taxes are due four times per year. If you missed a quarterly tax payment, the IRS will charge you with an underpayment penalty for not paying enough or not paying on time (even if you’re owed a tax refund).

The penalty charged is not a static number for everyone, based on the amount underpaid and the period it was not paid. The IRS will typically charge a failure-to-pay penalty of 0.5% of the unpaid amount every month it is unpaid, up to a maximum of 25%. In addition, you’ll also be charge interest based on the IRS’ interest rates, which are determined every quarter.

The way to avoid paying the underpayment penalty is to either pay 90% of your expected tax liability for the current tax year with timely estimated quarterly payments, or pay at least 100% of the amount you owed on last year’s federal tax return. If your adjusted gross income is over $150,000, you’ll have to pay 110% of the amount owed last year.

Who needs to pay estimated tax payments?

If you’re wondering if you need to make estimated tax payments, this guide takes you through a detailed explanation on who’s required to pay, and what types of income must be reported.

Quarterly taxes are most commonly paid by people who earn income that isn’t eligible for withholding. With a W-2 income, your employer withholds your taxes and pays the IRS on your behalf. But if you’re self-employed, run your own business, or earn money through investments, you’re required to pay your taxes as you earn income directly to the IRS.

You may have to pay estimated tax payments if…

Are quarterly tax payments mandatory?

Yes, if you’re eligible for quarterly tax payments, then you must pay quarterly taxes when they’re due. If you don’t, you could be hit with a penalty from the IRS even if you’re going to be owed a refund when you file your taxes.

When do I need to pay quarterly taxes?

Estimated taxes are due four times per year, usually on April 15, June 15, September 15, and January 15. If any of the days fall on a weekend or holiday, they get moved to the following weekday.

For 2023, the due dates are:

If you run a business and don’t use the calendar year as your fiscal year, then your due dates are:

What is the penalty for not paying quarterly estimated tax payments?

The IRS charges an underpayment penalty to anyone who is late to pay their estimated taxes, or anyone who doesn’t pay enough. The penalty is not a static percentage or dollar amount, but based on the total amount unpaid and the period the taxes weren’t paid. The more you owe, and the longer you don’t pay, the more you’ll owe in penalties and interest you’ll owe.

If you receive an underpayment penalty, the IRS will send you a notice that you owe the Underpayment of Estimated Tax by Individuals Penalty.

You’ll typically be charged with interest at the federal short-term borrowing rate in addition to an extra 3 percentage points onto the annual percentage rate for the penalty. You and your accountant can use Form 2210 to determine the exact penalty amount.

Additionally, underpayments can also be subject to the failure-to-pay penalty, which is 0.5% of the amount owed for each month that you haven’t paid, up to a maximum of 25%.

How to avoid the underpayment penalty

There are two ways to avoid paying the underpayment penalty:

Penalty exceptions, waivers, and reductions

Exceptions

You are not required to pay estimated taxes if either of the following apply:

Waived and reduced penalties

If you received an underpayment penalty, the penalty can be waived or reduced for the following reasons:

If you receive an underpayment penalty, the IRS will send you a notice that you owe the Underpayment of Estimated Tax by Individuals Penalty. If you think you qualify for a waiver or reduction in the underpayment penalty, you’ll have to respond to the notice with a written explanation, signed under penalty of perjury, to the address listed at the top of your notice.

If you can’t pay the full amount, set up a payment plan

If you’re unable to pay the full amount of your taxes on time, the IRS advises that you pay what you can and apply for a payment plan, which may reduce future penalties.

As an individual, you can qualify for either a long-term payment plan (monthly payments) or a short-term payment plan (paying in 180 days or less).

Note: Long-term payment plans have a $31 setup fee when set up with automatic withdrawals from your bank, or a $130 setup fee for non-direct debit payments.

Also read: What Are Quarterly Estimated Tax Payments and Who Needs to Pay?