If you’re a U.S. expat expecting to owe federal income tax, you may need to make estimated tax payments. Unlike employees with tax withholding, self-employed individuals, freelancers, and expats with investment income must pay the IRS directly.
This guide covers who needs to pay, how to calculate payments, available payment methods, deadlines, and penalties, helping you stay compliant and avoid unnecessary estimated tax penalties.
What Are Estimated Tax Payments?
Estimated tax payments are quarterly tax payments made to the IRS to cover federal income tax on income that is not subject to withholding. This applies to self-employed individuals, freelancers, investors, and U.S. expats who receive income such as capital gains, rental income, dividends, or business earnings. These payments help avoid a large tax bill at the end of the tax year and prevent underpayment penalties.
Unlike employees who have taxes withheld by an employer, expats must make quaterly payments themselves. The IRS requires taxpayers to pay enough tax throughout the payment period rather than waiting until they file their income tax return.
Who Needs to Pay Estimated Taxes?
You must pay estimated taxes if your income tax liability is expected to be at least $1,000 in federal tax after subtracting withholding and refundable credits. This applies to:
- Self-employed expats earning income abroad
- Those with investment income, capital gains, or rental income
- Individuals who had too little withholding in the previous year
- Expats who did not pay enough tax in four equal installments throughout the year
- Farmers and fishermen who meet specific IRS criteria
How to Calculate Estimated Tax Payments?
To determine how much tax you need to pay, estimate your adjusted gross income (AGI), taxable income, deductions, and total tax liability for the tax year.
The IRS allows you to base your estimated payments on:
- 90% of the expected tax liability for the current year, or
- 100% of the total tax shown on your previous year’s tax return (110% for high-income earners).
To help our clients stay compliant, we supply Form 1040-ES, which includes a payment voucher for making quarterly tax payments. We also assist in calculating estimated tax payments to ensure our clients pay enough tax and avoid an underpayment penalty.
When Are the Dates for Estimated Tax Payments?
The IRS requires estimated tax payments to be made in four installments throughout the tax year to avoid penalties. The quarterly estimated tax payments are due on:
- April 15 – First payment
- June 15 – Second payment
- September 15 – Third payment
- January 15 of the following year – Fourth and final payment
The January payment is particularly significant as it finalizes the estimated tax obligations for the year. Changes in income or tax obligations may affect the requirement to make the January payment, and failing to address this properly by the deadline can result in penalties for underpayment.
If a deadline falls on a weekend or holiday, the due date shifts to the next business day. Expats who fail to pay enough tax throughout the payment period may face a penalty, especially if they make unequal payments or miss a deadline without a reasonable cause or other unusual circumstance.
How to Make Estimated Tax Payments from Abroad?
U.S. expats can make estimated tax payments through several IRS-approved methods. The fastest and most reliable options include:
- IRS Direct Pay – Allows payments directly from a U.S. bank account.
- Electronic Federal Tax Payment System (EFTPS) – Requires online registration but is useful for recurring tax payments.
- IRS2Go Mobile Device App – Enables payments via debit or credit card.
- International Wire Transfers – Available for expats without access to a U.S. bank.
- Check or Money Order – Must be sent with a payment voucher from Form 1040-ES.
To ensure timely processing, payments should be submitted before the quarterly estimated tax payment deadlines.
What Happens If You Overpay or Underpay Estimated Taxes?
If you overpay your quarterly tax payments, you can apply the refund to your next quarter’s payment or request a refund when you file your expat tax return.
Related: How to Cash a U.S. Treasury Check Overseas
Penalties for Failing to Make Estimated Tax Payments
If you fail to make quarterly tax payments or underpay throughout the tax year, the IRS may impose an underpayment penalty. The penalty amount depends on how much tax you owe, the length of time the payment was overdue, and the IRS’s quarterly interest rates.
1. Underpayment Penalty
- The IRS calculates penalties based on the amount of unpaid tax and the number of days it remains unpaid.
- Interest is compounded daily and varies each quarter.
- The penalty applies if you owe $1,000 or more in federal tax after withholding and credits.
2. Late Payment Penalty
- If you miss the tax payment deadlines, the IRS may charge a late payment penalty.
- Even if you pay the full amount when you file your income tax return, you may still face a penalty for not making timely payments.
3. Failure-to-File Penalty
- If you do not file your income tax return on time and still owe taxes, you could face a separate failure-to-file penalty.
- This penalty is 5% per month of the unpaid tax liability, up to 25% of the total tax due.
