Tax returns are due but once a year. However, paying taxes — through withholding from your wages, estimated tax payments, or both — is a year-round activity. That’s why reviewing your tax payments regularly throughout the year is a good idea to ensure they’re as accurate as possible.

Double-check your withholding

If all or most of your income is from wages, whether from a salary or hourly pay, your employer withholds amounts from your paychecks designed to cover your annual tax liability. However, remember that withholding amounts are estimates based on the IRS withholding tables, which approximate a typical worker’s tax liability for the year at your compensation level. Keep in mind that not all taxpayers are created equal, so to speak.

Under some circumstances, relying on the withholding tables may result in an underpayment or overpayment. To avoid this, it’s best to estimate your tax liability and, if necessary, adjust your withholding by completing a new Form W-4.

You should repeat this exercise periodically to account for changes in your income or circumstances during the year. Doing so is particularly important if you experience life changes that impact your tax liability, such as marriage, divorce, birth or adoption of a child, or a period of unemployment.

Determine whether you must pay estimated taxes

Generally, you must make estimated tax payments if you expect to owe $1,000 or more in federal taxes when you file your return. This may be the case if you earn significant income from sources that aren’t subject to withholding, such as:

• Self-employment,
• Pass-through income from partnerships, S corporations or limited liability companies,
• Interest, dividends, capital gains or other investment income, or
• Rentals or royalties.

To satisfy your estimated tax obligations, calculate your expected tax liability for the year, subtract any expected withholdings and credits, and pay the remainder in four equal installments. The first installment for 2025 estimated taxes is due by April 15, 2025. Subsequent due dates are June 16, 2025, and September 15, 2025. The final due date for 2025 is January 15, 2026.

However, you don’t have to make estimated tax payments in a given year if you meet these conditions: (1) in the prior tax year, your tax liability was zero, or you weren’t required to file a return; (2) you were a U.S. citizen or resident alien for the entire year; and (3) your prior tax year covered 12 months. All three conditions must be met.

It’s also possible to avoid estimated taxes by increasing your withholdings from wages or other income sources. (See “Behold the power of withholding” below.)

Avoid estimated-tax penalties

The requirement to pay estimated taxes in four equal installments means you can be hit with penalties and interest if you skip or underpay an installment — even if your remaining installments cover your entire tax liability for the year. But it’s not always easy to predict your tax liability, especially if your income fluctuates. Fortunately, there are several ways to avoid penalties.

First, you won’t owe penalties if you pay at least 90% of the current year’s tax liability through withholdings and equal estimated tax installments. However, there’s still a risk that you’ll underpay your taxes if your income is higher than expected. For greater certainty, you can avoid penalties by paying 100% of your prior year’s tax liability through withholdings and equal estimated tax installments. Or pay 110% if your previous year’s adjusted gross income was more than $150,000 ($75,000 for married couples filing separately).

Finally, if your income fluctuates substantially during the year, you can use the annualized income installment method to avoid or reduce penalties. This method allows you to make unequal estimated tax payments by matching your payments to your actual income, deductions, and other tax attributes during each period.

Ask for help

If you want to manage your liability, it’s best to check in on your tax situation throughout the year so you can make necessary adjustments. This applies whether your income is subject to withholding, you must pay estimated taxes or both. Don’t hesitate to ask your tax advisor for help at any time.

Behold the power of withholding

Are you required to pay estimated taxes to the federal government? If so, you could get penalized and owe interest if you skip or underpay just one installment. And this is true even if your remaining installments cover your entire tax liability for the year.

Taxpayers who have withholding and must pay estimated taxes on other income may have a way to mitigate the problem. If this describes your situation, you might be able to avoid or reduce a penalty by increasing your withholding to make up the difference. Unlike estimated tax payments, which can trigger underpayment penalties if they’re not paid in equal installments, withholding amounts are treated equally throughout the year — regardless of when they’re paid.

Using this strategy, you can increase withholding from your or your spouse’s wages. Alternatively, increasing withholding from your IRA or other retirement plans may be possible if you’re retired and don’t have wages from which to withhold taxes. Consult your tax advisor for assistance.

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