For employees, with no other significant sources of income, the requirement to pay your income taxes throughout the year is frequently met through standard payroll tax withholding. 

However, if you have earned equity compensation, or if you are a higher-earner, if you are self-employed, an investor, or a retiree, then you may need to make quarterly estimated tax payments.

o If you are required to make quarterly payments, and you choose not to do so, then there may be related penalties due with your returns in April.

o For illustration, having a tax liability of $10,000 without paying appropriate quarterly taxes could have resulted in approximately $900 of federal penalties for underpayment of estimated taxes, under recent federal rates, assuming no exemptions apply.

o Note that states have their own requirements and penalties.

The safe harbor refers to an exception to the penalty for underpayment of federal estimated taxes. It also applies for many states although the specific rules are different for each state.
 

Note that the safe harbor method's exception to avoid underpayment of estimated tax penalties is not applicable in all circumstances. We will discuss if an alternative makes more sense.
 

Essentially, you pay an amount based on your prior year liability divided over the year and reduced for payments you've already made, such as withholding from employment or retirement distributions. Note that the requirement may be equal to the prior year liability, or slightly higher, or slightly lower, depending on the tax jurisdiction, and your adjusted gross income.

If your income is steady or increasing year-to-year, this method tends to make the most sense. It is easier than attempting to estimate your current year tax, and if your income is increasing, it keeps more cash in your accounts throughout the year which can be invested to earn interest. However, if your current income is higher than the prior year, you can reasonably expect to have a larger tax balance to pay in April to catch up remaining payments.

An option that some take is to use the safe harbor method for payments, and then request a projection at year-end to estimate the remaining balance they will have to pay in April so they can be better prepared.

If you are a tax client, calculating the safe harbor is included in your tax preparation fees with no further charges.

A projection is an estimate of your current year tax, as opposed to the safe harbor which is a payment based on the prior year liability.

The projection method is a little more involved; we work with you to gather the specific data points needed (paystub, investments, business income) and prepare a sort of miniature tax return. Following the IRS rules, we project out as if we can estimate the full years tax, and then you pay up through the current quarter. 

If your income is difficult to predict, or lower than the previous year, then paying quarterly taxes using the projection method could reduce your payments over the year compared with the safe harbor method.

Note that this projection step is important for your tax return in April, which will include a form using numbers from the projection to demonstrate to the IRS how you arrived at your quarterly payments. To that end, we share projection details and related analysis; not just the amount we suggest to pay.
 

Preparing projections, including data gathering, delivery, and explanations, are a separate fee from your tax return preparation. For each quarter, the current fee range for preparing projections is $425-875 with a quote available in advance.

DAV Consulting does not remit quarterly tax payments on your behalf. However, you can expect instructions and guidance with making these payments as part of the quarterly tax calculation service.

The dates for federal quarterly tax payments are as follows. If these dates fall on a weekend or holiday, then the due dates are generally extended to the following day. Note that the states may have their own deadlines.

First Quarter due April 15th
Second Quarter due June 15th
Third Quarter due September 15th
Fourth Quarter due January 15th

Historically these tax payments could be made electronically or by sending the tax authorities a check. However, various jurisdictions have been moving away from accepting paper checks. We suggest that clients register an online account with each jurisdiction you expect to pay taxes in so that you can make quarterly tax payments online.

Official tax authority portals may have other features as well, such as scheduling payments, payment history, transcripts, or notification functions. Be careful to make sure you are using an official government portal; look for the ".gov" in the website's URL address before submitting any information.

You may register with the IRS, or find out more information about personal IRS accounts, using the link below.

https://www.irs.gov/payments/online-account-for-individuals