Form 1040-ES: Estimated Tax for Individuals (2021)
What Form 1040-ES Is For
Form 1040-ES is the IRS form used to calculate and pay estimated taxes throughout the year on income that isn't subject to automatic tax withholding. Unlike wages from a regular job where your employer automatically withholds taxes from each paycheck, certain types of income don't have taxes taken out upfront. These include self-employment earnings, freelance income, interest and dividends from investments, rental property income, alimony, unemployment compensation, and the taxable portion of Social Security benefits.
The United States operates on a "pay-as-you-go" tax system, which means the IRS expects you to pay taxes as you earn income throughout the year rather than waiting until April 15th of the following year. Form 1040-ES helps you estimate how much you'll owe and provides payment vouchers to send in with quarterly payments. The form includes worksheets to calculate your expected adjusted gross income, deductions, credits, and ultimately your tax liability for the year.
The 2021 version of Form 1040-ES reflects updated tax brackets, standard deduction amounts, and credit limits specific to that tax year. For 2021, the standard deduction increased to $12,550 for single filers, $25,100 for married couples filing jointly, and $18,800 for heads of household. The form also accounts for changes such as the elimination of the tuition and fees deduction and increases to certain tax credits.
When You’d Use Form 1040-ES
Original Filing
You must file Form 1040-ES and make estimated tax payments for 2021 if two conditions are met: First, you expect to owe at least $1,000 in tax after subtracting your withholding and refundable credits. Second, you expect your withholding and refundable credits to be less than the smaller of either 90% of the tax shown on your 2021 tax return or 100% of the tax shown on your 2020 tax return (your 2020 return must cover all 12 months). There are special rules for certain groups: if your adjusted gross income in 2020 exceeded $150,000 (or $75,000 for married filing separately), you must pay 110% of your 2020 tax instead of 100%. Farmers and fishermen who receive at least two-thirds of their gross income from farming or fishing need only pay 66.67% rather than 90%.
You're exempt from making estimated tax payments if you were a U.S. citizen or resident alien for all of 2020 and had no tax liability for that full 12-month year, meaning your total tax was zero or you didn't have to file a return. Additionally, if you also receive wages with withholding, you may avoid estimated payments by asking your employer to withhold more from your paycheck using Form W-4.
Late or Amended Payments
If you discover after the payment deadlines have passed that you should have been making estimated payments, you cannot retroactively file Form 1040-ES for past quarters. However, you can still make the remaining quarterly payments to reduce your underpayment penalty. When you file your annual Form 1040 tax return, you'll likely owe the balance plus an underpayment penalty calculated on Form 2210.
To amend or correct your estimated tax payments mid-year, you need to refigure your total estimated tax by completing a new Estimated Tax Worksheet using updated income projections. Calculate what you should pay for each remaining quarter, taking into account what you've already paid. If your earlier payments were too low compared to your amended estimate, you may face a penalty when filing your annual return, but making higher payments for the remaining quarters will minimize this penalty. This commonly happens when your income changes dramatically mid-year, such as receiving a large capital gain, starting a lucrative side business, or getting a substantial raise.
Key Rules or Details for 2021
The general rule for estimated tax is that you must pay at least 90% of your current year's tax liability or 100% of last year's tax liability (whichever is smaller) through withholding and estimated payments. High earners with adjusted gross income over $150,000 must pay 110% of the prior year's tax rather than 100%. These thresholds create a "safe harbor" – if you meet them, you won't face an underpayment penalty even if you ultimately owe more tax when you file your return.
Estimated tax payments are due quarterly, but the quarters aren't equal. The 2021 payment deadlines were April 15 for income earned January through March, June 15 for April and May income, September 15 for June through August income, and January 18, 2022, for September through December income. You can skip the January 18th payment if you file your complete 2021 tax return and pay any balance due by January 31, 2022. If a payment deadline falls on a weekend or holiday, the due date moves to the next business day.
You can pay more frequently than quarterly if you prefer. Some taxpayers make monthly payments for better cash flow management. However, regardless of payment frequency, the total amount paid during each official payment period must at least equal the required amount to avoid penalties. Payment methods include mailing checks with payment vouchers, paying online through IRS Direct Pay, using debit or credit cards (with service fees), enrolling in the Electronic Federal Tax Payment System (EFTPS), or using the IRS2Go mobile app.
If you have income that fluctuates significantly throughout the year – such as seasonal business owners or those who receive most income late in the year – you may use the annualized income installment method. This allows you to match your estimated payments more precisely to when you actually earn income, potentially reducing or eliminating early-quarter payment requirements. To use this method, you must file Form 2210 with Schedule AI when submitting your annual tax return.
Step-by-Step (High Level)
Step 1: Gather Your Documents
Before starting Form 1040-ES, collect your most recent tax return (2020 for the 2021 form), recent pay stubs showing year-to-date income and withholding, records of other income sources, and information about deductible expenses you expect to claim. Having last year's return is especially helpful because the IRS allows you to base estimated payments on the prior year's tax, which provides a penalty-free safe harbor even if your income increases.
Step 2: Complete the Estimated Tax Worksheet
The worksheet walks you through calculating your expected tax liability. Start by estimating your adjusted gross income for the full year, accounting for all income sources. Subtract your expected deductions – either your standard deduction or itemized deductions if you'll have significant qualifying expenses. This gives you your estimated taxable income. Apply the 2021 tax rate schedules to calculate your base tax. Add self-employment tax if applicable (calculated using a separate worksheet for 92.35% of net self-employment income), alternative minimum tax if you're subject to it, and any other taxes such as Additional Medicare Tax or Net Investment Income Tax.
Next, subtract any credits you expect to claim, such as the child tax credit, earned income credit, or education credits. The result is your total estimated tax for the year. Subtract any income tax you expect to be withheld from wages, pensions, or other sources. The remaining amount is what you need to pay through estimated tax payments.
Step 3: Determine Your Required Payment Amount
Calculate two figures: 90% of your expected 2021 tax (line 12a) and 100% of your actual 2020 tax (line 12b) – or 110% if your 2020 AGI exceeded $150,000. Your required annual payment is whichever figure is smaller. If you expect your withholding plus estimated payments to fall short of this amount by $1,000 or more, you must make estimated payments.
Step 4: Calculate Quarterly Payment Amounts
Divide your total estimated tax payment by four to get your quarterly payment amount. If you're making your first payment on April 15, send one-fourth of your total estimated tax (minus any 2020 overpayment you're applying to 2021). Continue making equal quarterly payments by the remaining deadlines. Adjust future quarterly payments if your income situation changes during the year.
Step 5: Make Your Payments
Choose your payment method. For mailed payments, complete the payment voucher for the appropriate quarter with your name, address, Social Security number, and payment amount. Write "2021 Form 1040-ES" and your SSN on your check, making it payable to "United States Treasury." Mail to the address specified for your state. For electronic payments, use IRS Direct Pay at no cost, schedule payments through your IRS online account, call EFTPS after enrolling, or use the IRS2Go mobile app. Electronic payments are faster, more secure, and provide immediate confirmation.
Common Mistakes and How to Avoid Them
Underestimating Income and Owing Penalties
One of the most frequent errors is significantly underestimating income, particularly for those with variable income like freelancers, contractors, or investors with capital gains. This results in inadequate quarterly payments and triggers underpayment penalties. To avoid this, review your income quarterly rather than setting payments once at the beginning of the year. If you receive an unexpectedly large payment, immediately refigure your estimated tax and increase subsequent quarterly payments. Using the safe harbor rule of paying 100% (or 110% for high earners) of your prior year's tax eliminates penalty risk even if you underestimate current year income, though you'll still owe the difference when filing your return.
Missing Payment Deadlines
Estimated tax payments must be postmarked by the due dates – April 15, June 15, September 15, and January 18 (or January 15 for farmers/fishermen). Many taxpayers assume quarterly means every three months, but the IRS quarters are irregular. Missing even one deadline can trigger penalties calculated daily from the due date. Set calendar reminders well before each deadline, or use the EFTPS system to schedule all four payments at once at the beginning of the year. Electronic payments made by 8 PM Eastern time on the due date count as timely.
Forgetting to Account for Self-Employment Tax
Employees only see income tax withheld from paychecks, but self-employed individuals must pay both the employer and employee portions of Social Security and Medicare taxes, totaling 15.3% on net earnings up to the Social Security wage base ($142,800 for 2021) plus 2.9% Medicare tax on all remaining earnings. Forgetting this dramatically underestimates required payments. Always use the Self-Employment Tax and Deduction Worksheet included with Form 1040-ES, calculating 92.35% of your net profit, then applying the self-employment tax rates. Remember you can deduct half of your self-employment tax when calculating your adjusted gross income.
Failing to Coordinate with Withholding
If you have both W-2 wages with withholding and other income requiring estimated payments, you must account for your withholding when calculating estimated tax. Some taxpayers make full estimated payments without subtracting their withholding, effectively overpaying. Others assume their job withholding covers everything and don't make estimated payments on additional income, triggering penalties. Line 13 of the worksheet specifically asks for expected withholding – include all federal income tax from W-2s, pension withholding, and any voluntary withholding from unemployment or Social Security. Only pay estimated tax on the remaining balance.
Using Outdated Forms or Tax Rates
Tax laws change annually, with adjustments to tax brackets, standard deductions, and credit amounts. Using a prior year's form for the current year's estimated payments results in incorrect calculations. Always download the current year's Form 1040-ES from IRS.gov. For 2021, significant changes included increased standard deductions, elimination of the tuition and fees deduction, and higher income limits for certain credits. Using 2020 rates would produce wrong payment amounts and potentially expose you to penalties.
What Happens After You File
Payment Processing and Application
When you make estimated tax payments – whether by mail with vouchers or electronically – the IRS applies them to your Social Security number for the tax year specified. Electronic payments typically appear in IRS systems within 24-48 hours, while mailed checks take one to two weeks to process. You can verify payments by accessing your IRS online account at IRS.gov/account, where you'll see your payment history for the past five years. Payments made via Direct Pay, EFTPS, credit card, or debit card generate immediate confirmation numbers, and many methods send email confirmations. Keep these confirmations as proof of timely payment.
Annual Tax Return Reconciliation
Estimated tax payments are interim payments toward your final tax liability. When you file your Form 1040 or 1040-SR for 2021 (typically by April 15, 2022), you'll report all estimated tax payments made during 2021 on line 26. The IRS combines your estimated payments with any withholding and refundable credits, then compares the total to your actual tax liability. If you paid more than you owe, you'll receive a refund or can apply the overpayment to your 2022 estimated taxes. If you paid less than you owe, you must pay the remaining balance by April 15, 2022. Even if you made all four estimated payments on time, you might still owe additional tax if you underestimated your income.
Underpayment Penalties
If you didn't pay enough estimated tax during the year, the IRS will calculate an underpayment penalty when processing your return. This penalty is essentially interest charged for each day the underpayment remained unpaid, calculated separately for each quarterly period. The penalty uses quarterly interest rates published by the IRS, which change based on the federal short-term rate plus three percentage points. However, you won't face a penalty if your total withholding and estimated payments reached either 90% of your current year tax or 100% of your prior year tax (110% if you're a high earner), or if you owe less than $1,000 after subtracting withholding and credits.
The penalty can be waived or reduced under specific circumstances. If the underpayment resulted from a casualty, disaster, or other unusual circumstance where imposing the penalty would be inequitable, you can request a waiver by writing to the IRS explaining your situation, signed under penalty of perjury. The penalty may also be reduced if you or your spouse retired after age 62 or became disabled in the past two years and had reasonable cause for underpayment, if most of your income tax was withheld early in the year rather than evenly throughout the year, or if your income varied substantially during the year and you use the annualized income installment method.
Record Keeping for Future Reference
Maintain detailed records of all estimated tax payments, including dates paid, amounts, payment methods, and confirmation numbers. The "Record of Estimated Tax Payments" page at the back of Form 1040-ES provides a convenient tracking sheet. These records prove timely payment if the IRS questions your payments and help when preparing next year's estimated taxes. If you made a name change during the year and made payments under your former name, attach a statement to your paper return explaining this and showing all payments made. Keep your completed worksheets showing how you calculated estimated tax amounts, as they'll be valuable if the IRS assesses an underpayment penalty and you need to demonstrate reasonable cause.
FAQs
Can I just pay all my estimated tax at once in April instead of making four quarterly payments?
Yes, Form 1040-ES allows you to pay your entire estimated tax liability with your first payment on April 15 rather than splitting it into four quarterly installments. This approach is particularly appealing if you have cash available early in the year or want to avoid tracking multiple payment deadlines. However, be aware that if your income throughout the year ends up higher than expected, you might face an underpayment penalty for later quarters even though you paid a substantial amount upfront. The IRS calculates penalties quarterly based on when you should have paid as income was earned. For penalty avoidance purposes, it's often safer to make quarterly payments that match your actual income flow. That said, many taxpayers prefer paying annually for simplicity and invest the remaining funds until later payments would be due.
What if my income varies significantly from month to month?
Income volatility is common for freelancers, seasonal businesses, commission-based salespeople, and investors with irregular capital gains. Rather than making equal quarterly payments, you can use the annualized income installment method, which allows you to match payments to when you actually earn income. For example, if 80% of your annual income arrives in the fourth quarter, you can make minimal or zero payments for the first three quarters and pay the bulk in January. To use this method, you must complete Form 2210 with Schedule AI when filing your annual return, recalculating your tax liability as if each period were annualized over a full year. This method requires more detailed recordkeeping and calculations, but it can substantially reduce penalties for those with uneven income.
