Late Payment Penalty for Quarterly Estimated Taxes

As a small business owner, you normally have to make estimated quarterly tax payments to the Internal Revenue Service throughout the year. This makes it easier to afford the taxes you owe rather than have a lump-sum balance due at tax time. It also helps the government handle the influx of payments throughout the year rather than all at once. It is also generally more affordable for the small business owner to pay taxes on the money they are earning periodically; however, for some it can be difficult to meet these quarterly obligations. Your ability to pay depends on how profitable your company is on a month to month basis and what your current cash flow situation is.

Estimated Taxes for Business

Not only is it important to satisfy your overall tax liability for each year as a self-employed individual, but you want to pay before each deadline to avoid additional penalties on top of the tax you already owe. Understanding the consequences of paying your estimated taxes late (or not at all) is important if you want to stay on the good side of the federal government and not go into debt with a huge tax bill year after year. Here is a basic overview of what you need to know:


Photo by Dominic’s pics via Flickr

How Estimated Tax Payments are Calculated

If you do not have a tax accountant preparing your tax paperwork for you, you can still calculate the estimated amount of taxes you would owe by using your total tax liability from the year previous and dividing that number by 4. You are responsible for paying 100% of the total liability you had from last year if your income is below $75,000 even if you anticipate making less money.

If you earn over $75,000, you are required to pay 110% of the tax liability as estimated taxes. This is known as the safe harbor rule as it can be difficult to anticipate how well or poorly your business will perform this year. If you experience rapid growth, paying your previous year’s tax liability (or 110% of it) will protect you from penalties.

If this is your first year in business you will need to track your quarterly revenues and expenses to calculate how much tax you owe. Even if you are unsure if your payment is 100% accurate it is best to send something in rather than just wait until the next quarter to accurately pay for the previous quarter.

Estimated Tax Payment Due Dates

Estimated tax payments are due quarterly. The standard dates for these payments are:

  • April 15th (April 18th for 2011),
  • June 15th,
  • September 15th, and
  • January 15th of the following year (January 17th for 2012)

That having been said, always check the IRS’ guidelines in Publication 505. If you miss these deadline dates, even if you send in payments that are larger than your estimated requirements, you may still be subjected to a penalty. For small business owners who have income that varies from month to month, a waiver may be granted to rescind the penalties incurred from late payments. A form must be completed by the tax payer to request this waiver of penalties. The annualized income installment method is found on Form 2210.

How Much Will a Penalty Cost You?

Penalties are assessed based on the amount of time you are late. The IRS calculates the penalties by dividing the annual interest rate by 365 days. The result is multiplied by the total number of days the estimated tax payment is late. That percentage is used to calculate the amount you will pay in penalties.

Penalties owned on estimated taxes must be calculated on IRS Form 2210. If you did not make any estimated tax payments during the year, all four payments will be considered late and will incur a late penalty charge. If you paid part of your taxes through the year but was not able to make the full amount due (you owed $600 quarterly but only paid $400 quarterly) you would incur a penalty only for the amount you failed to pay.

About the Author

By , on Apr 28, 2011
Tisha Tolar
Tisha Tolar is a co-owner of Trifecta Strategies, LLC and the author of Gen X. When she is not busy being a fiction writer, she writes personal finance articles for several web sites, including Moolanomy.com.

2013 Tax Center

important dates
2013 Important Tax and Filing Dates

Leave Your Comment (13 Comments)

  1. nick says:

    I missed my Sep 15, 2014 federal estimated tax payment for 2014 in amount of $1,700. can i still send it in a week later? will i be penalized for late payment? can i pay this online? need direction please.

  2. Mike says:

    I just realized i missed the 15 June est tax payment. We only pay $469 per quarter. What happens if i mail it out tomorrow and they don’t receive it until next week?

  3. Richard and Marilynn Roessler says:

    I was hospitalized during the April 15 estimated tax due and neglected to send my check. I will mail it with my June 15, but would like to know the penalty so I can include it with the payment and the penalty at that time. Please advise.

  4. Mary F. says:

    I’m not sure I paid enough for the first quarter. Now that I’ve received my tax refund, I’d like to send more, but would that tip off the IRS that I hadn’t paid enough the first time?

  5. Judith A Naeger says:

    I pay a quarterly estimated tax of $1500 a quarter. Just realized I forgot to send in. Went online and processed my payment today 1-19-14. Do I owe a penalty? And if so how do I pay it?

  6. Nisa says:

    I started my sole proprietor business in August of this year. I only profited about $30 for that month. I didn’t do my research well because I did not know about paying for estimated taxes until recently. I know I owe about $7 for that quarter. Will I get penalized? I am estimated to owe less than $1000 this year (according to GoDaddy Bookkeeping service). So will penalties be waived? Thank you!

    • Pinyo says:

      @Nisa – Don’t worry about first year especially when you didn’t make that much profit. You’re protected by the safe harbor rule. Nothing to worry about. Thanks for asking.

      • Nisa says:

        Whew! I’m actually going in to talk to a tax advisor on Monday. You saved me a whole weekend of worrying. :) But I made about $3500 in profit for Q4. I’m estimated to pay about $850. Will I have to pay the estimated tax on January 15th? But since I am a first year business, can I pay whatever I owe when I file my income tax? Thanks!

      • Pinyo says:

        @Nisa – As long as you already paid more taxes this year than you had last year, or if you do not expect to owe tax this year, you’ll be fine. If you’re not sure and has $850, the easiest thing to do is write the IRS a check (and don’t forget about state and local income taxes).

      • Nisa says:

        I guess I am in the clear now. Thank you so much!

  7. Suk-Youn Suh says:

    I am a partner of 4 members LLC. Do I need to make estimate tax each quarter or can I wait until I recieve K-1 from LLC in January?

    • Pinyo says:

      @Suk-Youn Suh – If your company creates profit during the year, it’s a good idea to pay the quarterly taxes. If you wait until you receive K-1, you may risk having to pay penalty.

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