Estimated Quarterly Taxes

Marcus called in October. He’d been driving Uber for three years and every April was a disaster. He always owed between $2,500 and $3,500. Always a surprise. Always painful.

“Is there anything I can do?” he asked. “Or is this just my life now?”

Ralph told him there was another option. He’d just never known about it.

Estimated quarterly payments.

Marcus was quiet. “What’s that?”

The IRS expects taxes to be paid as income is earned — not all at once in April. For employees, withholding handles this automatically. For self-employed people and gig workers, there’s no employer to do that. So the IRS set up a system: pay your taxes four times a year yourself, in roughly equal installments. Do that, and April becomes normal instead of terrifying.

Here are the due dates every self-employed client needs to know. They are not negotiable and they don’t align with calendar quarters — which trips people up:

Notice that Q2 only covers two months, not three. And Q4 is due in January of the following year. These dates are set by the IRS and they don’t change year to year.

The easiest approach for most of your clients: take whatever they owed last year, divide by four, and pay that amount each quarter. This is called the safe harbor method. If they pay 100% of last year’s tax liability in quarterly installments, they avoid the underpayment penalty — even if they end up owing more when they file.

For clients who had a big income change and know they’re earning significantly more this year, paying 90% of the current year’s expected tax is the other safe harbor option. Either way, the penalty is avoided.

The rough rule of thumb for new self-employed clients: set aside 25-30% of every payment you receive. That covers income tax plus SE tax for most situations. It’s not exact — expenses and deductions will change the final number — but it keeps them from being caught flat-footed.

The underpayment penalty is not catastrophic. It’s essentially interest on the amount that should have been paid. If Marcus misses Q1 but catches up in Q2, he owes a small penalty just on the Q1 period. Missing all four quarters and paying everything in April is the worst case — but it still just means penalties and interest on the amount that was late, not some massive punishment.

The penalty is usually small enough that it doesn’t change the conversation dramatically. But it’s real money and it’s avoidable. Help your clients set up quarterly payments and they won’t have to deal with it.