How Estimated Taxes Work, Safe Harbor Rule, and Due Dates (2021)

Taxes are complicated.

They’re not hard, they’re complicated.

They’re complicated in the same way that old computer systems are complicated. As a software developer, it’s not uncommon for you to update old code to perform new functions. What often happens, especially in poorly designed systems, is that you just update the code. You don’t redesign the system, known as refactoring, with the new functionality – you just add it to the existing system.

As you’d expect, over many years, systems built this way don’t operate as efficiently.

The most recent Tax Cuts and Jobs Act, signed last year, amended the Internal Revenue Code of 1986. That’s over three decades ago!

But hey – that’s neither here nor there – because today I want to talk about estimated taxes. And estimated taxes are often made out to be this complex system where you have to do things a perfect way or you’ll get in trouble.

It’s not complicated and I’ll explain exactly how they work.

Table of Contents
  1. What Are Estimated Taxes?
  2. What is the Safe Harbor Rule?
  3. Estimated Tax Due Dates for Tax Year 2021
  4. Common Estimated Tax Payment Questions
    1. How do I pay quarterly estimated taxes to the IRS?
    2. What if I want to calculate exactly what I owe?
    3. Do you need to pay in equal amounts?
    4. What if you fail to pay?

What Are Estimated Taxes?

Our tax code requires you to pay taxes as you earn income.

If you’re a W-2 employee, your employer withholds your taxes from every paycheck. This is based on what you enter on a Form W-4.

At the end of the year, you fill out your tax return, figure out your actual tax liability, and pay the difference or get a tax refund. Easy right?

If you earn any income outside of a job that withholds your taxes, you should be paying estimated taxes each quarter based on your earnings. The idea is that these quarterly estimated payments will be close enough to withholding.

There is one exception though, known as the safe harbor rule.

What is the Safe Harbor Rule?

The IRS knows that people who aren’t working a traditional W-2 job might have irregular income. So they offer a little leeway and won’t punish you if you’re a little short.

The estimated safe harbor rule has three parts:

  • If you expect to owe less than $1,000 after subtracting your withholding, you’re safe.
  • If you pay 100% of your tax liability for the previous year via estimated quarterly tax payments, you’re safe. If your adjusted gross income for the year is over $150,000 then it’s 110%.
  • If you pay within 90% of your actual liability for the current year, you’re safe.

So they expect you to be close (or over), and won’t penalize you if you don’t get it exactly right.

Your state will also have estimated tax payment rules that may differ from the federal rules.

Estimated Tax Due Dates for Tax Year 2021

The estimated tax payments are due on a quarterly basis. And those dates are roughly the same each year – the 15th of April, June, September, and the following January.

From time to time the actual day slides, due to holidays and weekends.

For 2021, the dates are:

QuarterDue Date
2021 First QuarterApril 15th, 2021
2021 Second QuarterJune 15th, 2021
2021 Third Quarter:September 15th, 2021
2021 Fourth QuarterJanuary 15th, 2022*
* If you file your tax return by January 31st, 2022, you do not need to make the fourth quarter estimated payment. You can simply calculate your actual taxes due and pay it with your return.

Common Estimated Tax Payment Questions

How do I pay quarterly estimated taxes to the IRS?

If you want to make your payment online, there are several options on the IRS website for paying your taxes. One of the most common is to use the Electronic Federal Tax Payments System to make your payments, but that requires creating another account you will need to manage.

Personally, I just pay via mail because then I have a canceled check as my record. It’s how I’ve done it for years so I never felt a need to change it. You can start by downloading Form 1040-ES and the payment vouchers are on page 11.

Where you send your payment depends on where you live, just like where you would mail your tax returns (yo, e-file! you get your tax refund faster!).

  • Alabama – Internal Revenue Service, P.O. Box 931100, Louisville, KY 40293-1100
  • Alaska – Internal Revenue Service, P.O. Box 510000, San Francisco, CA 94151-5100
  • Arizona – Internal Revenue Service, P.O. Box 510000, San Francisco, CA 94151-5100
  • Arkansas – Internal Revenue Service, P.O. Box 802502, Cincinnati, OH 45280-2502
  • California – Internal Revenue Service, P.O. Box 510000, San Francisco, CA 94151-5100
  • Colorado – Internal Revenue Service, P.O. Box 510000, San Francisco, CA 94151-5100
  • Connecticut – Internal Revenue Service P.O. Box 37007 Hartford, CT 06176-7007
  • Delaware – Internal Revenue Service P.O. Box 37007 Hartford, CT 06176-7007
  • Florida – Internal Revenue Service, P.O. Box 1300, Charlotte, NC 28201-1300
  • Georgia – Internal Revenue Service, P.O. Box 931100, Louisville, KY 40293-1100
  • Hawaii – Internal Revenue Service, P.O. Box 510000, San Francisco, CA 94151-5100
  • Idaho – Internal Revenue Service, P.O. Box 510000, San Francisco, CA 94151-5100
  • Illinois – Internal Revenue Service, P.O. Box 802502, Cincinnati, OH 45280-2502
  • Indiana – Internal Revenue Service, P.O. Box 802502, Cincinnati, OH 45280-2502
  • Iowa – Internal Revenue Service, P.O. Box 802502, Cincinnati, OH 45280-2502
  • Kansas – Internal Revenue Service, P.O. Box 802502, Cincinnati, OH 45280-2502
  • Kentucky – Internal Revenue Service, P.O. Box 931100, Louisville, KY 40293-1100
  • Louisiana – Internal Revenue Service, P.O. Box 1300, Charlotte, NC 28201-1300
  • Maine – Internal Revenue Service P.O. Box 37007 Hartford, CT 06176-7007
  • Maryland – Internal Revenue Service P.O. Box 37007 Hartford, CT 06176-7007
  • Massachusetts – Internal Revenue Service P.O. Box 37007 Hartford, CT 06176-7007
  • Michigan – Internal Revenue Service, P.O. Box 802502, Cincinnati, OH 45280-2502
  • Minnesota – Internal Revenue Service, P.O. Box 802502, Cincinnati, OH 45280-2502
  • Mississippi – Internal Revenue Service, P.O. Box 1300, Charlotte, NC 28201-1300
  • Missouri – Internal Revenue Service P.O. Box 37007 Hartford, CT 06176-7007
  • Montana – Internal Revenue Service, P.O. Box 802502, Cincinnati, OH 45280-2502
  • Nebraska – Internal Revenue Service, P.O. Box 802502, Cincinnati, OH 45280-2502
  • Nevada – Internal Revenue Service, P.O. Box 510000, San Francisco, CA 94151-5100
  • New Hampshire – Internal Revenue Service P.O. Box 37007 Hartford, CT 06176-7007
  • New Jersey – Internal Revenue Service, P.O. Box 931100, Louisville, KY 40293-1100
  • New Mexico – Internal Revenue Service, P.O. Box 510000, San Francisco, CA 94151-5100
  • New York – Internal Revenue Service P.O. Box 37007 Hartford, CT 06176-7007
  • North Carolina – Internal Revenue Service, P.O. Box 931100, Louisville, KY 40293-1100
  • North Dakota – Internal Revenue Service, P.O. Box 802502, Cincinnati, OH 45280-2502
  • Ohio – Internal Revenue Service, P.O. Box 802502, Cincinnati, OH 45280-2502
  • Oklahoma – Internal Revenue Service, P.O. Box 802502, Cincinnati, OH 45280-2502
  • Oregon – Internal Revenue Service, P.O. Box 510000, San Francisco, CA 94151-5100
  • Pennsylvania – Internal Revenue Service P.O. Box 37007 Hartford, CT 06176-7007
  • Rhode Island – Internal Revenue Service P.O. Box 37007 Hartford, CT 06176-7007
  • South Carolina – Internal Revenue Service, P.O. Box 931100, Louisville, KY 40293-1100
  • South Dakota – Internal Revenue Service, P.O. Box 802502, Cincinnati, OH 45280-2502
  • Tennessee – Internal Revenue Service, P.O. Box 931100, Louisville, KY 40293-1100
  • Texas – Internal Revenue Service, P.O. Box 1300, Charlotte, NC 28201-1300
  • Utah – Internal Revenue Service, P.O. Box 510000, San Francisco, CA 94151-5100
  • Vermont – Internal Revenue Service P.O. Box 37007 Hartford, CT 06176-7007
  • Virginia – Internal Revenue Service, P.O. Box 931100, Louisville, KY 40293-1100
  • Washington – Internal Revenue Service, P.O. Box 510000, San Francisco, CA 94151-5100
  • West Virginia – Internal Revenue Service P.O. Box 37007 Hartford, CT 06176-7007
  • Wisconsin – Internal Revenue Service, P.O. Box 802502, Cincinnati, OH 45280-2502
  • Wyoming – Internal Revenue Service, P.O. Box 510000, San Francisco, CA 94151-5100

If you need to speak to someone at the IRS, here is how to reach a live person at the IRS.

What if I want to calculate exactly what I owe?

If you are self-employed, there are two parts to calculate how much you need to pay. The first involves self-employment tax. Self-employment taxes adds a wrinkle when calculating what you owe but the IRS can help.

The IRS has a worksheet included in the Form 1040-ES package that you can use to calculate it better based on your expected income:

That same workbook has a tax rate schedule you can use to calculate the taxes you might owe. Use that to figure your estimated payments and you’ll likely be within the 90% safe harbor rule.

Next, you’ll need to check out page 8 of the document for the estimated tax worksheet, which relies on your income and tax bracket to figure out your taxes due:

Do you need to pay in equal amounts?

Generally yes, but it’s OK if some are larger than others due to irregular income. Most people calculate the safe harbor amount, add some wiggle rule, divide by four, and pay that amount. It’s easier to calculate that way and it’s just as safe from a tax perspective, just make sure to keep enough aside in case you have a good year and owe more come April.

Also, for the last payment in January, you don’t need to make it if you file your tax return by January 31st.

What if you fail to pay?

If you don’t pay enough, the IRS will assess an underpayment penalty. You’ll just owe taxes plus a bit for the penalty.

And before you go, here are 50 fun tax facts to put a smile on your face.

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Jim Wang

About Jim Wang

Jim Wang is a thirty-something father of three who is a frequent contributor to Forbes and Vanguard's Blog. He has also been fortunate to have appeared in the New York Times, Baltimore Sun, Entrepreneur, and Marketplace Money.

Jim has a B.S. in Computer Science and Economics from Carnegie Mellon University, an M.S. in Information Technology - Software Engineering from Carnegie Mellon University, as well as a Masters in Business Administration from Johns Hopkins University. His approach to personal finance is that of an engineer, breaking down complex subjects into bite-sized easily understood concepts that you can use in your daily life.

One of his favorite tools (here's my treasure chest of tools,, everything I use) is Personal Capital, which enables him to manage his finances in just 15-minutes each month. They also offer financial planning, such as a Retirement Planning Tool that can tell you if you're on track to retire when you want. It's free.

He is also diversifying his investment portfolio by adding a little bit of real estate. But not rental homes, because he doesn't want a second job, it's diversified small investments in a few commercial properties and a farm in Illinois via AcreTrader.

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  1. Sean Boldin says

    Based on reading the safe harbor rules, as long as I pay in a combo of estimated taxes and w2 withholding 100% of previous year tax liability (or 110% if 150K+ AGI), I should be safe.

    I have already realized 60K in cap gains in 2021 and may realize another 30K although this is hard to predict.

    Is my understanding correct about safe harbor?

    If I can meet my safe harbor amount with only paying $1-2K quarterly + my w2 withholdings, should I pay the minimum to meet safe harbor and pay the rest in 2022? Or would you pay the total amount quarterly and try to get as close to the total now by paying the full quarterly amounts of approximately $4k/quarter???

    Thanks for your feedback.

    Regards,

    Sean

    • Jim Wang says

      That is my understanding of safe harbor, paying 110% of the previous year (for higher AGI) or 90% of actual. I’m not a tax accountant so there may be nuances there I’m missing but that’s how I understand it. Your state may have different rules too, or different income tiers for the 110% amount.

      Personally, I would pay the total amount quarterly but if you want to be optimal, pay only what you’re required to and set aside the rest. The challenge is that setting aside the rest doesn’t really get you much (interest rates are so low) so you may get tempted to invest it and, if the market tanks, be debating whether to take the capital loss or not. Not a great position to be in.

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