Do you need to pay quarterly estimated taxes? A complete guide

Do you need to pay quarterly estimated taxes? A complete guide

‍TLDR: If you’re earning over $200,000 and have income beyond your regular paycheck—from stock options, restricted stock units, rental properties, side businesses, or investment gains—you likely need to make quarterly estimated tax payments. The IRS expects taxes to be paid as you earn, not all at once in April. Miss this, and you’ll likely face penalties even if you pay your full tax bill on tax day.

Here’s the reality most high earners discover too late: Your paycheck withholding only covers your salary. That RSU vest, those rental properties, or the stock options you exercised? The IRS wants their cut quarterly, not annually. Range discusses the rules around paying quarterly estimated taxes.

Who Actually Needs to Pay Estimated Taxes?

The $1,000 rule is simple: If you expect to owe more than $1,000 in federal taxes after accounting for withholding and credits, you need to make quarterly payments. But let’s get specific about what triggers this for professionals like you.

You’ll typically need to make estimated payments if you have:

• Self-employment income (consulting, side businesses, freelancing)

• Significant investment gains from trading or cryptocurrency

• Income from partnerships or S-corporations

• Large bonuses with insufficient withholding

You probably need estimated payments if you:

• Have RSUs vesting

• Sold company stock outside of retirement accounts

• Have substantial dividend income

• Received unemployment compensation

The W-2 trap: Many high earners assume their paycheck withholding covers everything. It doesn’t. Your employer withholds based on your salary, not your total income picture. That $50,000 RSU vest? Only 22% gets withheld, leaving you short if you’re in the 32% or 35% bracket.

How to Calculate What You Owe

The IRS gives you two safe harbor options to avoid penalties.

Option 1: The Prior Year Method (Safest)

Pay 110% of last year’s total tax liability if your adjusted gross income exceeded $150,000 (100% if under $150,000). Divide by four for quarterly payments.

Example: Last year’s tax bill was $40,000, and your AGI was $300,000. You need to pay $44,000 / 4 = $11,000 per quarter to stay penalty-free, regardless of this year’s actual tax bill.

Option 2: The Current Year Method (More Complex)

Pay 90% of this year’s projected tax liability. This works if you expect lower income this year, but requires accurate projections.

The calculation:

1. Estimate your total 2025 income (salary + RSUs + capital gains + rental income + everything else).

2. Calculate expected tax liability using current rates.

3. Subtract existing withholding from paychecks and RSUs.

4. If the remainder exceeds $1,000, you need quarterly payments.

The Withholding Advantage

Here’s what some advisors won’t tell you: The IRS treats payroll withholding as if it occurred evenly throughout the year, regardless of when it actually happens. This means you can avoid quarterly payments by increasing your W-4 withholding or requesting additional withholding on RSU vests—even late in the year.

2025 Estimated Tax Payment Due Dates

Mark these dates. Missing them triggers penalties:

• Q1 2025 (January-March income): April 15, 2025

• Q2 2025 (April-May income): June 16, 2025

• Q3 2025 (June-August income): Sept. 15, 2025

• Q4 2025 (September-December income): Jan. 15, 2026

Notice Q2 only covers two months while others cover three. The IRS doesn’t follow calendar quarters.

Common Mistakes That Cost Money

Mistake #1: Treating withholding like estimated payments

Your paycheck withholding is treated as paid evenly throughout the year. Estimated payments aren’t. If you make your first estimated payment in June, the IRS assumes you underpaid Q1 and may assess penalties.

Mistake #2: Using last year’s effective rate

If your income increased significantly, last year’s effective rate will underestimate this year’s marginal rate. That 24% you paid last year might be 32% this year.

Mistake #3: Ignoring state requirements

Most states with income taxes have their own estimated payment requirements, often with different thresholds and due dates.

Mistake #4: The “I’ll pay it all in April” approach

This is expensive. The IRS assesses penalties on underpayments for each quarter, plus interest. Even if you pay your full tax bill by April 15, you can still owe penalties for the previous quarters.

Form 2210: When Penalties Strike

Form 2210 calculates underpayment penalties when you haven’t paid enough quarterly taxes. The penalty is essentially interest on the underpaid amount for each quarter you were short.

Current penalty rate: Approximately 8% annually (updated quarterly)

How it works: The IRS calculates penalties separately for each quarter based on how much you underpaid and for how long.

You can avoid Form 2210 by meeting either the safe harbor rule or proving you paid 90% of your actual tax liability through the annualized income installment method.

State-Specific Considerations

While federal rules are consistent, states vary significantly. Here’s what matters for the highest-tax states:

California estimated tax payments: Required if you expect to owe $500 or more. Uses 110% safe harbor for AGI over $150,000, but calculates differently than federal.

New York estimated tax payments: $300 threshold for estimated payments. Safe harbor is 110% of the prior year for AGI over $150,000.

Virginia estimated tax payments: Follow federal thresholds but have different due dates aligned with federal quarters.

Most states allow you to make payments through their revenue department websites, similar to the federal system.

Strategic Tax Planning

Instead of reactive quarterly payments, build proactive strategies that minimize both your tax bill and your payment complexity.

What this looks like:

• Real-time tax projections as income and life events change.

• Coordination between federal and state payment strategies.

The 25% rule: If you’re not ready for comprehensive tax planning, start simple. Set aside 25% of any income without automatic withholding in a separate account. This covers most scenarios and eliminates quarterly surprises.

When to Seek Professional Help

DIY quarterly payments work for straightforward situations. You need professional guidance when you have:

• Multiple income sources with complex timing

• Substantial equity compensation (ISOs, NQSOs, RSUs)

• Real estate investments or business ownership

• Income that varies significantly from quarter to quarter

• Multistate tax obligations

Quarterly Taxes Don’t Have to Be Stressful

The key is shifting from reactive quarterly scrambling to proactive year-round planning. When you understand your total income picture and plan accordingly, quarterly payments become routine rather than stressful.

Your financial success has created complexity that traditional approaches can’t handle efficiently. The solution isn’t to simplify your income—it’s to sophisticate your tax strategy to match your success.

Frequently Asked Questions

What is an annualized quarterly tax payment spreadsheet? An annualized payment spreadsheet calculates estimated taxes based on your actual income each quarter rather than equal payments. This helps if your income varies significantly throughout the year, potentially reducing penalties when income is uneven.

How do California’s estimated tax payments differ from federal? California requires estimated payments if you expect to owe $500 or more (vs. $1,000 federal). The state uses its own safe harbor calculations and tax rates, though the payment schedule aligns with federal due dates.

When are New York’s estimated tax payments due? New York follows the same quarterly schedule as the federal government: April 15, June 15, Sept. 15, and Jan. 15. However, New York’s threshold is $300 owed (vs. $1,000 federal), and the state has its own safe harbor rules.

What are the estimated tax payment requirements for the state of California? California requires quarterly payments if you expect to owe $500 or more in state taxes. The safe harbor is 110% of the prior year’s California tax if AGI exceeded $150,000, or 100% if under that threshold. Penalties apply for underpayment, similar to federal rules.

How do Virginia’s estimated tax payments work? Virginia generally follows federal guidelines but with its own tax rates and brackets. The state requires estimated payments if you expect to owe more than $150. Virginia allows online payments through their tax portal and follows federal quarterly due dates.

When are New York State estimated tax payments due?

New York State estimated payments follow the federal schedule: Q1 is due April 15, Q2 is due June 15, Q3 is due Sept. 15, and Q4 is due Jan. 15 of the following year. The state requires payments if you expect to owe $300 or more.

Disclosures and Important Information:

The information contained in this communication is for informational purposes only. This content may not be relied on in any manner as specific legal, tax, regulatory, or investment advice. While Range strives to present accurate and timely content, tax laws and regulations are subject to change, and individual circumstances can vary.

You should not rely solely on the information contained here when making decisions regarding your taxes or financial situation. Range strongly recommends consulting with a certified tax professional, accountant, or legal advisor to address your specific needs and ensure compliance with applicable laws.

This story does not establish a client relationship, and Range does not accept any liability for any loss or damages incurred as a result of the use of or reliance on the content of this post.

This story was produced by Range and reviewed and distributed by Stacker.