Here's What Happens When You Pay the Wrong Amount of Estimated Tax

One of the trickiest things about being self-employed is that your income may not be predictable. When you earn a salary, you can expect the same amount of money to hit your

bank account every two weeks, once a month, or at whatever interval you're paid at. But when you're self-employed, you might earn $1,700 one month, $3,800 the next month, and $2,300 the month after that. That could make budgeting very difficult.

Another tough thing about being self-employed is that you're responsible for paying your own taxes every quarter. You won't have those taxes deducted from your paychecks automatically the same way salaried workers do.

For the 2023 tax year, estimated tax payments are due on:

• April 18 (the same date as this year's tax-filing deadline)
• June 15
• Sept. 15
• Jan. 15, 2024

It's important to pay your estimated taxes on time, because if you're late, you might face penalties. But you could also be looking at a penalty for underpaying your estimated taxes. And if you overpay those taxes, the IRS won't charge you, but you'll effectively be penalizing yourself.

You want to get that number just right -- or as close as possible

There's a reason the IRS refers to the quarterly tax payments self-employed workers make as "estimated" payments. Until you see your entire income picture for the year, it's difficult to know exactly how much tax to pay the IRS.

Incidentally, this isn't just an issue for people who are self-employed. Salaried workers often end up either getting a refund or owing the IRS money when they file their tax returns because there are a lot of factors that go into calculating a total tax bill for the year. These include things like income earned outside of wages (such as capital gains in a brokerage account) and deductions.

Meanwhile, you might face a penalty for underpaying your estimated taxes during the year. The amount of that penalty will depend on how much of an underpayment you're looking at. You can also, in some cases, get an underpayment penalty wiped out or reduced if your income varies a lot throughout the year. But it's generally best to avoid a penalty in the first place by paying enough.

On the flip side, if you make too high an estimated quarterly tax payment, the IRS won't penalize you for sending extra money. But you'll be hurting yourself by sending that money off to the IRS rather than hanging onto it to pay your bills.

It pays to get professional help

Calculating your estimated tax payments is tough work. Not only do you need to account for your income, but you also need to factor in things like investment gains, business expenses, and more.

That's why your best bet is really to hire an accountant to help you come up with those numbers. Doing so might reduce your chances of underpaying the IRS and getting slapped with a penalty in the process. It might also lower your chances of parting with more of your money than you really need to.