What a Target Payment Is
A target payment is a lump-sum payment you make to the IRS when you expect to owe taxes for the year but want to avoid penalties for underpayment. Instead of waiting until April to pay what you owe, you send money to the IRS in advance — usually in quarterly installments — based on what you predict your tax bill will be.
The IRS charges penalties if you don't pay enough tax throughout the year, either through withholding from a paycheck or through estimated tax payments. A target payment is your way of saying to the IRS: "I know I'll owe this much, and here's the money now." It reduces or eliminates the underpayment penalty, even if your final bill turns out to be different.
Target payments are most common for self-employed people, freelancers, investors, and anyone else whose income isn't subject to employer withholding. But anyone can make them if they expect to owe money.
Key Takeaways
- Target payments are voluntary lump-sum payments to the IRS meant to cover taxes you expect to owe, sent before the tax year ends.
- You make target payments in four quarterly installments on specific dates: April 18, June 15, September 15, and January 16 of the following year.
- The IRS charges an underpayment penalty if you don't pay enough tax during the year, and target payments reduce or eliminate that penalty.
- You calculate a target payment by estimating your total tax liability for the year, subtracting any withholding, and dividing the remainder into four parts.
- If you overpay through target payments, you receive the excess back as a refund when you file your tax return.
Who Needs to Make Target Payments
You should consider making target payments if you expect to owe $1,000 or more in federal income tax for the year and won't have enough withheld from paychecks or other sources to cover it. The IRS does not require target payments — they are voluntary — but skipping them when you owe money triggers an underpayment penalty.
Self-employed people and business owners almost always make target payments because they have no employer withholding. Freelancers, contractors, and gig workers in the same situation should too. You also need them if you have investment income (capital gains, dividends, rental income) that isn't subject to withholding, or if you receive a large bonus or inheritance partway through the year.
If you are an employee with a regular paycheck, you may still need target payments if your withholding is too low — for instance, if you have a spouse who also works, or if you have side income your employer doesn't know about. You can adjust your W-4 form instead, but if you are late in the year and realize you will owe, a target payment is faster.
The Four Quarterly important date
Target payments are due in four installments on fixed dates each year. These dates do not change, though the IRS may shift them by one day if a important date falls on a weekend or federal holiday. The four dates are:
| Quarter | Covers Income From | Payment Due Date |
|---|---|---|
| Q1 | January 1 – March 31 | April 18, 2024 |
| Q2 | April 1 – May 31 | June 17, 2024 |
| Q3 | June 1 – August 31 | September 16, 2024 |
| Q4 | September 1 – December 31 | January 16, 2025 |
If you miss a important date, you can still make the payment, but the IRS will charge interest and an underpayment penalty from the original due date. The penalty applies to each quarter you underpay, so missing one important date costs more than missing all four. If you realize partway through the year that you will owe, you can start making target payments at the next quarter — you do not have to go back and pay for earlier quarters, though doing so reduces your total penalty.
How to Calculate What to Pay
To figure out how much to send each quarter, start by estimating your total tax for the year. This means projecting your income, subtracting deductions, and calculating what you will owe in federal income tax, self-employment tax (if you are self-employed), and any other federal taxes. If you filed a return last year, your tax bill from that return is a reasonable starting point — many people straightforward divide last year's tax by four and pay that amount each quarter.
Next, subtract any tax that will be withheld from your paychecks, pensions, or other income sources during the year. If you are an employee, check your most recent pay stub to see how much federal income tax your employer is withholding. Multiply that by the number of pay periods left in the year to estimate your total withholding.
The difference between your estimated total tax and your estimated total withholding is what you need to cover with target payments. Divide that amount by four and pay one quarter by each important date. If your income is uneven — for instance, you earn most of your money in the fall — you can pay different amounts each quarter, as long as each payment meets a minimum threshold to avoid penalties. This is called the annualized installment method, and it requires more detailed calculation; the IRS Form 2210 walks through it.
How to Send a Target Payment to the IRS
You have several ways to send target payments to the IRS. The most common is through the IRS Direct Pay system on the IRS website (irs.gov), which is free and lets you schedule payments in advance. You provide your bank account information, the amount, and the quarter it covers, and the IRS deducts the money on the date you choose.
You can also pay by credit or debit card through a third-party processor — the IRS does not accept cards directly, but companies like PayPal, Stripe, and others process these payments for a fee. You can mail a check to the IRS with Form 1040-ES (the estimated tax payment voucher), though mailing is slower and riskier if the check is lost. Some tax software packages also let you make target payments directly from the program.
Whichever method you use, keep a record of the payment — a confirmation number, receipt, or bank statement showing the deduction. When you file your tax return, you will report these payments, and the IRS will match them to your account. If you overpay, you receive a refund; if you underpay, you owe the difference plus any penalty.
What Happens If You Overpay or Underpay
If your target payments add up to more than your actual tax bill when you file your return, the IRS sends you a refund for the excess. You can choose to receive the refund by check, direct deposit, or as a credit toward next year's target payments. There is no penalty for overpaying — it is treated the same as any other refund.
If you underpay — meaning your target payments plus withholding fall short of your actual tax bill — you owe the difference when you file. The IRS also charges an underpayment penalty, calculated separately for each quarter you did not pay enough. The penalty rate changes quarterly and is based on the federal short-term interest rate. For 2024, the rate is 8 percent per year, but it varies by quarter and year.
You can avoid the underpayment penalty in two ways: pay at least 90 percent of your current year's tax through withholding and target payments combined, or pay 100 percent of last year's tax (110 percent if your adjusted gross income last year was over $150,000). If you meet either threshold, no penalty applies even if you owe money when you file.
Common Mistakes to Avoid
The biggest mistake is not making target payments at all when you know you will owe. Many self-employed people wait until April to pay, then face a penalty for underpayment. The penalty is not huge — typically a few hundred dollars for a moderate tax bill — but it is avoidable.
Another common error is using last year's tax as your target payment without adjusting for changes in your income. If your business grew significantly or you had a major life change (marriage, job loss, inheritance), your tax bill this year may be very different. Recalculate at least twice a year — at midyear and in the fall — and adjust your remaining payments if needed.
A third mistake is missing the important date by even one day. The IRS charges interest and penalties from the original due date, not from the date you actually pay. If April 18 is your important date and you pay on April 19, you owe interest and penalty for that one day. Set a calendar reminder at least one week before each important date.
Finally, do not assume that making one large payment in December covers all four quarters. The IRS applies payments to quarters in order, so a single December payment covers Q4 only. You still owe penalties for Q1, Q2, and Q3 if you did not pay by their important date. Make four separate payments on four separate dates.
Frequently Asked Questions
Do I have to make target payments, or are they optional?
Target payments are optional, but if you do not make them and you owe taxes, the IRS charges an underpayment penalty. The penalty applies to each quarter you underpay, so it is usually cheaper to make the payments than to skip them and pay the penalty later.
What if I do not know how much I will earn this year?
Estimate based on last year's income or your year-to-date income so far. You can adjust your target payments as the year goes on — if you realize in September that you will earn less than you thought, you can reduce your Q4 payment. The IRS allows you to recalculate and change your payments at any time.
Can I make one big target payment instead of four quarterly ones?
You can, but the IRS will explore it to the most recent quarter only. You will still owe penalties for the earlier quarters you underpaid. It is better to make four separate payments on the four due dates, even if the amounts are uneven.
What if I pay too much in target payments?
You receive a refund when you file your tax return. You can take it as a check, direct deposit, or explore it to next year's target payments. There is no penalty for overpaying.
How do I report target payments when I file my tax return?
You report them on Form 1040 (the main individual income tax return) in the payments section. The IRS already has a record of your payments, so they will match automatically. If there is a discrepancy, the IRS will contact you.