How To Pay Estimated Taxes And Follow The Safe Harbor Rule

Estimated taxes are necessary for freelance workers and business owners. These taxes are paid quarterly.

As a W-2 employee, your employer withholds your taxes from each paycheck. Otherwise, the government would have a huge shortfall in revenue each month because plenty of people would skip paying their taxes or “forget.”

Estimated taxes should be enough so that you within a reasonable range for your annual tax bill. Pay too little, and there could be a penalty.

What is the Safe Harbor Rule?

The Safe Harbor Rule is to help those non-W-2 income folks who have irregular income.

Here is the main part of the Safe Harbor Rule:

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 you must pay at least 110% of last year's taxes.
If you're estimating a down year, so long as you pay within 90% of your actual liability for the current year, you're safe.

So long as you follow these rules, you won't have to pay a tax penalty. The final rule is a weird one because what if you have a really bad year, down more than 10%?

You just really don't know your full-year income until the end of the year. If you paid 90% of your last year's income, but your income was down 50%, you will obviously get a massive tax refund.

You don't have to pay 90% of your actual previous year tax liability if you know that your income is going down. 90% is just part of the safe harbor rule.

Estimated Tax Due Dates

The estimated tax payments are due on a quarterly basis. They are: April 15, June 15, September 15, and January 15. They are the same every year, except for when there's a holiday.

Below are the due dates for 2022, which will be the same for 2023 and beyond.

Quarter	Due Date
2022 First Quarter	April 15th, 2022
2022 Second Quarter	June 17th, 2022
2022 Third Quarter:	September 16th, 2022
2022 Fourth Quarter	January 15th, 2022

Where To Send Estimated Tax Payments

Everything should be online nowadays using the Electronic Federal Tax Payments System. To do so, you would need to create an account.

You can also pay via snail mail by downloading Form 1040-ES and then sending in the payment vouchers on page 11.

These are the addresses where you would send your estimated payments depending on which state you live in.

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

Tax Penalties Aren't A Big Deal

In terms of payment amount, it's best to follow the Safe Harbor Rule, divide by 4, and pay that amount each quarter.

The reality is, even if you don't pay enough, your tax penalty will only be on the underpayment amount times a certain percentage. That percentage is usually no more than 6%.

For example, if you under pay by $5,000, your tax penalty would be no more than $300.

It's not like in the movies or when you see celebrity cases on TV where people get thrown in jail and fined millions of dollars. The IRS knows that the tax system is complicated. So long as you're doing your best, they will see that.

Also, for the last payment in January, you don't need to make it if you file your tax return by January 31st. Follow the safe harbor rule so you never have to pay penalties.

What If You Overpay Your Estimated Taxes By Too Much?

Finally, there is a chance you might overpay your estimated tax by a large amount. In 2022, I accidentally paid my 2021 tax bill twice due to new software and user error. If you do such a thing, the IRS will refund you within six months. So don't worry too much. Eventually, you will get your money back.

For more nuanced personal finance content, join 50,000+ others and sign up for the free Financial Samurai newsletter. To get my posts in your inbox as soon as they are published, sign up here. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009.

Flip