As an individual taxpayer, you can face a significant interest penalty if you fail to pay enough federal income tax in advance—including any self-employment tax and alternative minimum tax (AMT)—via withholding and/or timely estimated tax payments. Don’t forget this important step throughout the year to avoid extra underpayment penalties. No more excuses for missing estimated tax payments.

You usually trigger the penalty when missing estimated tax payments. If that happens, what can you do about it? Read on for answers.

Avoid Missing Estimated Tax Payments

Using a calendar for tax payments, the due dates for quarterly estimated tax payments for the 2025 tax year are:

April 15, 2025

June 16, 2025

September 15, 2025

January 15, 2026

Best Ways to Pay

The best way to make quarterly estimated federal income tax payments depends on convenience, security, and record-keeping preferences. Here are the 5 methods to avoid missing estimated tax payments:

1. Online Payment through IRS Direct Pay

How it works: Go to IRS Direct Pay and pay directly from your bank account.

Advantages:

Free to use. No fees are the best.

Immediate confirmation of payment. Make sure to print and save a pdf so you have proof of payment and the confirmation number.

Easy to schedule payments ahead of time. Set it and forget it!

Best for taxpayers who want a simple, fast, and secure option. Who doesn’t want simple, fast, and secure?

2. IRS Electronic Federal Tax Payment System (EFTPS)

How it works: Register at EFTPS.gov, then make payments electronically from your bank account.

Advantages:

Free service with secure online access. No fees are the best.

Allows scheduling payments in advance. Set it up once a year, and you’re good to go.

Comprehensive payment history for record-keeping. I still recommend keeping a copy of each payment as a pdf.

Best for taxpayers who want detailed tracking and a robust payment platform.

3. Pay via IRS2Go Mobile App

How it works: Use the IRS2Go app (available for iOS and Android) to make payments through Direct Pay or a credit/debit card.

Advantages:

Convenient for mobile users. Nothing like getting stuff done with your smartphone, right!?!?

Same security features as IRS Direct Pay. Security is important.

Best for tech-savvy taxpayers who prefer mobile transactions. I still like using my computer so I can save proof and confirmation of payment. I don’t always trust the IRS systems to work properly. Call me a skeptic if you want, but I’ve been dealing with them for over a decade now as a professional.

4. Pay by Debit or Credit Card or Digital Wallet

How it works: Use an authorized payment processor listed on the IRS website to pay by card.

Advantages:

Convenient if cash flow is tight.

Possible credit card rewards.

Disadvantage:

Service fees apply (vary by processor). I’m not big on paying extra fees on top of my taxes.

Best for: Taxpayers who prefer using credit/debit cards despite fees.

5. Mail a Check or Money Order

How it works: Mail Form 1040-ES with a check or money order to the IRS.

Advantages:

Familiar method for those uncomfortable with electronic payments.

Disadvantages:

Risk of delays in processing or lost mail. I’ve had so many items get lost in the mail lately. This is a reality now.

No immediate confirmation of payment. The only proof you have is a cashed check, and who knows how long that can take?

Best for: Taxpayers who prefer traditional methods or lack internet access.

Recommended Method

For most individuals, IRS Direct Pay and EFTPS are the best choices because they are secure, free, and offer immediate payment confirmation. These methods also provide excellent record-keeping features critical for tax compliance and audit purposes.

I’m big on proof and keeping good records. You never know when you’ll need to show that confirmation.

Insufficient Estimated Tax Penalty Basics

If you are self-employed or operate your business as an S corporation, you likely need to make quarterly estimated tax payments. You get hit with a non-deductible penalty if you don’t make sufficient payments on time.

You might also need to make quarterly estimated tax payments if you have other income, such as investment income from taxable brokerage accounts, pension income, taxable Social Security benefits, taxable retirement account withdrawals, or rental income with no or insufficient federal income tax withholding. As you can see, there are quite a few instances when you might need to make estimated tax payments.

Penalty Rates

The penalty rate for insufficient estimated tax payments can change every quarter. For example:

The annual equivalent rate for the fourth quarter of 2024 was 8 percent.

For the first quarter of 2025, the rate dropped to 7 percent.

This rate fluctuates with the general interest rates. You can check the latest interest rates for missing estimated tax payments here.

Key point: The penalty is not deductible. If you are in the 37 percent tax bracket, the 8 percent penalty is effectively 12.7 percent because you can’t deduct it.

Calculating the Penalty

When the penalty applies, you can calculate it using IRS Form 2210. Alternatively, you can file your Form 1040 for the year, let the IRS calculate it, and send you a bill.

Period for Which the IRS Charges the Penalty

The penalty period starts on the due date for the quarterly payment and ends on the earlier of:

April 15 of the following year, or

The date on which you pay the underpayment.

The IRS credits estimated tax payments against any unpaid required quarterly installments in the order that such installments were due.

Example: Catching Up for a Missed Estimated Tax Payment

For 2024, your required quarterly estimated tax payments are $20,000. You made the first and second quarter payments on time but missed the third payment due on September 16, 2024. You’ll be assessed a penalty on $20,000 until you catch up.

If you catch up by making a $40,000 payment on January 15, 2025, you’ll owe the penalty on $20,000 from September 16, 2024, through January 15, 2025.

If you make a $20,000 catch-up payment on December 5, 2024, the penalty stops running then.

If you don’t catch up by April 15, 2025, the penalty stops running, but you’ll start owing a failure-to-pay penalty of 0.5 percent of the underpaid amount for each month until you cure the underpayment.

Key point: If you miss an estimated tax payment, you can stop the penalty from running by making a catch-up payment, but you can’t eliminate the prior unpaid penalty.

Exceptions to the Penalty for Underpayment of Estimated Tax

Several exceptions allow you to minimize or avoid the penalty. Here are the three most commonly used:

Current-Year Tax Exception

No penalty applies if you pay at least 90 percent of your current year’s tax, as shown on your Form 1040, via timely estimated tax payments.

Example: If your current-year tax bill is $80,000 and you make on-time quarterly payments totaling $72,000 (90 percent), you avoid the penalty.

Prior-Year Tax Exception

No penalty applies if you pay at least 100 percent of the tax shown on your prior year’s Form 1040 via timely estimated tax payments.

For those with an adjusted gross income (AGI) over $150,000, you must pay 110 percent of the prior year’s tax.

Annualized Income Installment Method Exception

If your income is uneven throughout the year, you can use this method to avoid a penalty by making unequal estimated tax payments that reflect the timing of your income.

Example: Seasonal business income, sale of investment property, or a late-year capital gain.

Takeaways

Avoid the penalty for underpayment of estimated tax by making sufficient, on-time estimated tax payments. No more missing estimated tax payments.

Choose secure payment methods like IRS Direct Pay or EFTPS to ensure compliance.

If you miss a payment, make a catch-up payment to stop the penalty from accruing, but note that prior penalties can remain.

Understand and utilize penalty exceptions when applicable.

Use a tax professional to help guide you throughout the year on your estimated tax payments.