Advance payment of tax is money you send to the IRS or your state tax authority before you file your tax return, usually because you owe taxes on income that hasn't had tax withheld yet.

The IRS calls this an estimated tax payment. You make it when you earn income—self-employment income, rental income, investment gains, or other sources—where your employer doesn't automatically deduct federal income tax from each paycheck. State tax authorities use the same system for state income tax.

The core idea is simple: taxes are due throughout the year, not just on April 15. If you wait until you file to pay what you owe, you may owe a penalty for underpayment, even if you eventually pay the full amount. Advance payments let you spread that liability across the year and avoid that penalty.

Key Takeaways

  • Advance tax payments are required if you expect to owe $1,000 or more in federal income tax and don't have enough withheld from other income sources.
  • You calculate what you owe using IRS Form 1040-ES for federal tax or your state's equivalent form, then send payments quarterly (April 15, June 15, September 15, and January 15).
  • Payments go directly to the IRS or your state tax authority through mail, electronic transfer, or credit card, and you receive a confirmation number for your records.
  • If you overpay, the IRS holds the excess as a credit against next year's taxes or returns it to you, depending on what you request when you file.
  • Underpayment penalties apply only if your total payments fall short of 90 percent of your current year tax or 100 percent of your prior year tax (110 percent if your prior year income exceeded $150,000).

Who has to make advance tax payments

You are required to make advance payments if you expect to owe $1,000 or more in federal income tax after accounting for any tax withheld from W-2 wages, pensions, or other sources. This threshold is the same whether you are self-employed, a freelancer, a business owner, or someone with significant investment income.

The IRS does not send you a bill or notice telling you to pay. You calculate the amount yourself using Form 1040-ES (Estimated Tax for Individuals), which includes a worksheet that walks you through your expected income, deductions, and tax liability for the year. Your state tax authority publishes a similar form if your state has an income tax.

If you have no idea what you will earn in a given year—common for new freelancers or business owners—you can estimate conservatively and adjust in later quarters. The penalty applies only if your total payments fall short of a safe harbor threshold, which is either 90 percent of your current year tax or 100 percent of your prior year tax (110 percent if your prior year adjusted gross income was over $150,000).

How to calculate and send advance payments

Start with IRS Form 1040-ES or your state's equivalent. The form includes a worksheet that asks for your expected income, deductions, credits, and tax rate. You work through it to arrive at your total expected tax liability for the year, then divide that by four to get your quarterly payment amount.

The federal payment schedule is fixed: April 15, June 15, September 15, and January 15 of the following year. If any of these dates falls on a weekend or holiday, the deadline moves to the next business day. Your state may use the same schedule or a different one; check your state tax authority's website for the exact dates.

You can pay by mail (check or money order), electronic transfer through the IRS Direct Pay system, the Electronic Federal Tax Payment System (EFTPS), or credit or debit card through an IRS-approved payment processor. Each method generates a confirmation number; keep it with your tax records. State payments typically follow similar channels—check your state's tax website for the exact options available to you.

What happens if you overpay or underpay

If you pay more than you owe, the IRS will either apply the excess to next year's estimated tax payments or refund it to you. When you file your annual return, you tell the IRS which option you prefer. Many people choose to apply the overpayment to the next year to reduce their next round of quarterly payments.

If you underpay—meaning your total payments fall below the safe harbor threshold—the IRS charges an underpayment penalty on the shortfall. The penalty rate changes quarterly and is based on the federal short-term interest rate plus 3 percent. The penalty is small if the underpayment is small, but it compounds if you are significantly short. You cannot avoid the penalty by paying the full amount when you file; it applies to the period during which the money was owed.

The safe harbor rule means you can underpay slightly without penalty. If you paid 90 percent of your 2024 tax liability through withholding and estimated payments, you owe no penalty even if you owe more when you file. This is why many people estimate conservatively early in the year and adjust upward in later quarters if their income is higher than expected.

Adjusting payments if your income changes

You are not locked into your first estimate. If your income rises or falls significantly partway through the year, you can recalculate and adjust your remaining quarterly payments. This is especially useful for self-employed people whose income fluctuates month to month.

For example, if you estimated $60,000 in income and paid $15,000 per quarter, but by September you realize you will earn only $40,000, you can file an amended Form 1040-ES and reduce your final January payment. Conversely, if you are earning more than expected, you can increase your remaining payments to avoid underpayment penalties.

Keep copies of every Form 1040-ES you file and every payment confirmation. When you file your annual return, you will report all four quarterly payments, and the IRS will verify them against what you submitted. If there is a discrepancy, the IRS will contact you.

Advance payments and self-employment tax

Self-employment tax (Social Security and Medicare tax) is separate from income tax, but you calculate and pay it the same way. Form 1040-ES includes a line for self-employment tax in its worksheet. If you are self-employed, your quarterly payment covers both income tax and self-employment tax.

Self-employment tax is 15.3 percent of your net self-employment income (12.4 percent for Social Security up to an annual income cap, 2.9 percent for Medicare with no cap). You can deduct half of your self-employment tax when calculating your income tax, which Form 1040-ES accounts for automatically.

State advance tax payments

Most states that have an income tax require advance payments using the same logic as the federal system. Your state publishes its own estimated tax form—often called Form IT-ES or something similar—with its own payment schedule and thresholds. Some states align with the federal schedule; others do not.

A few states have no income tax (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming), so you would not make state advance payments in those places. If you live in one state but earn income in another, you may owe advance payments to both. Check your state tax authority's website for the specific form and deadline.

Frequently Asked Questions

What if I miss a quarterly deadline?

The IRS will charge an underpayment penalty for the quarter you missed, even if you pay the full amount when you file your return. If you realize you missed a deadline, make the payment as soon as possible to minimize the penalty. The penalty is calculated from the original due date, so paying late does not eliminate it, but paying sooner rather than later reduces the interest portion.

Can I pay advance taxes with a credit card?

Yes, but only through an IRS-approved payment processor. The IRS does not accept credit cards directly. You can use PayPal, Authorize.Net, or other approved processors, but they charge a convenience fee (typically 1.87 to 2.35 percent of the payment). Paying by check, electronic transfer, or EFTPS costs nothing.

Do I need to make advance payments if I have a side job and a W-2 job?

Only if your total tax liability from both sources exceeds $1,000 after accounting for withholding from your W-2 job. If your W-2 employer withholds enough to cover your total tax bill, you may not need to make advance payments. Use Form 1040-ES to calculate whether you are in the safe harbor.

What if my income is unpredictable?

Estimate conservatively based on your prior year income or a reasonable projection. You can adjust in later quarters as you see how the year is actually going. Many self-employed people estimate high in the first quarter and reduce subsequent payments once they have actual income data.

Do advance payments reduce my tax refund?

No. Advance payments are credits against your total tax liability, just like withholding from a W-2 job. If you overpay through advance payments, you will receive a refund or can apply the excess to next year's taxes, the same as with any other overpayment.