When are estimated taxes due, and how much do I have to pay to avoid a penalty?

Estimated tax is how you pay income tax on money that has no withholding, or not enough of it. If you expect to owe $1,000 or more after withholding and refundable credits, you generally need to pay during the year rather than at filing time.

The U.S. tax system is pay-as-you-go. Your employer withholds tax from every paycheck, but nobody withholds on these:

• Self-employment and 1099 income (consulting, design, e-commerce, rideshare, freelancing)
• Net rental income
• Capital gains, dividends and interest
• Pension or IRA distributions without withholding
• A side business on top of a W-2 job, or a spouse who is self-employed

If those add up to a balance due of $1,000 or more, the IRS treats it as an underpayment and charges a penalty based on how much was short in each period and for how long.

The four deadlines are April 15, June 15, September 15 and January 15 of the following year. When a date falls on a weekend or holiday, it moves to the next business day. The periods behind each payment are uneven.

The June payment comes just two months after April, which is why it's the one people miss most often.

If your four payments add up to at least 90% of this year's tax or 100% of last year's tax (110% if last year's AGI exceeded $150,000), you won't owe an underpayment penalty, even if you still owe a balance when you file. You can use whichever rule works better for you.

Two quick examples, assuming no other withholding:

• Last year's tax was $20,000 and AGI was $120,000. Paying 100% of last year's tax means $20,000, or $5,000 per installment.
• Last year's tax was $40,000 and AGI was $200,000. Because AGI was over $150,000, the target is 110%: $44,000, or $11,000 per installment.

W-2 withholding counts toward the target, so you only need to make up the difference. If your income is hard to predict, the prior-year rule is the safer choice. If you know this year will be noticeably lower, the 90% rule lets you pay less.

North Carolina is separate from the IRS. You pay state estimates on Form NC-40 or online through the NC Department of Revenue, on the same four dates as the federal payments. A federal payment never covers your state balance, and NC charges its own penalty and interest.

• Federal: IRS Direct Pay (straight from your bank account, no enrollment), EFTPS, your IRS online account, or a check with a 1040-ES voucher.
• North Carolina: NCDOR online payment, or a check with an NC-40 voucher.

Keep every confirmation number. When we prepare your return, we match each payment by amount and date.

First figure out which situation you're in. The sooner a shortfall is made up, the smaller the penalty.

• Situation A: You realize mid-year that you should have been paying. Catch up the missed amount now and pay the full amount going forward. Or raise your W-4 withholding for the rest of the year. Because withholding counts as paid evenly, it can cover earlier gaps too.
• Situation B: The year is over and you owe a penalty. Form 2210 figures the penalty. If your income came in unevenly, the annualized method usually lowers it. Waivers are available for casualties, disasters and other unusual circumstances.
• Situation C: This is your first year (new freelancer, new landlord, a large stock sale). Estimate the year's income, choose a safe harbor, set four payment amounts and calendar reminders, and plan federal and North Carolina together.