Quarterly estimated taxes for the self-employed: who pays, how much, and when

When you're an employee, your employer takes tax out of every paycheck and sends it to the IRS. When you work for yourself, nobody does that for you. The IRS still wants the money as you earn it, not in one lump in April, so self-employed people and business owners pay "estimated tax" in four installments through the year.

Skip it and you'll owe a penalty on top of the tax, even if you pay everything you owe when you file. The good news is that the rules for avoiding that penalty are simple, and you don't need to predict your income perfectly to follow them.

Who has to pay

The IRS says individuals generally must pay estimated tax if they expect to owe $1,000 or more when they file, after subtracting any withholding and credits. In practice, that includes most:

• freelancers, consultants and independent contractors,
• sole proprietors and single-member LLC owners,
• partners and members of multi-member LLCs, on their share of profit,
• S corporation owners whose salary withholding doesn't cover the tax on their share of profit, and
• people with significant income from investments or rentals.

There's one exception for a first profitable year. You don't have to pay estimated tax if you had no tax liability for the prior year, were a US citizen or resident for the whole of it, and that year covered a full 12 months.

Corporations have their own rules and pay estimated tax if they expect to owe $500 or more.

What the payments cover

Estimated tax covers all the federal tax that isn't withheld from a paycheck. For a self-employed person, that's two taxes:

• Income tax on your business profit and any other income, at your personal rates.
• Self-employment tax of 15.3% on 92.35% of your net self-employment earnings, covering Social Security and Medicare. The Social Security part stops at $184,500 of earnings in 2026.

Self-employment tax surprises many new freelancers. It's charged even when your income tax is low, so someone with modest profit can still owe more than they expect.

The 2026 due dates

The periods aren't equal quarters, which catches people out. If a due date falls on a weekend or legal holiday, a payment made the next business day is on time. You can skip the January payment if you file your 2026 return by February 1, 2027 and pay the full balance with it.

How to avoid the penalty: the safe harbor

You don't need to know exactly what you'll earn this year. The IRS won't charge the underpayment penalty if your estimated payments and withholding together add up to at least the smaller of:

• 90% of this year's tax, or
• 100% of last year's tax, as shown on last year's return.

If last year's adjusted gross income was more than $150,000, or $75,000 if married filing separately, the prior-year figure is 110% instead of 100%.

The prior-year route is the easiest for most people, because the number is already on last year's return. Pay a quarter of it each due date and you're covered, even if this year turns out much better. You'll owe the rest when you file, but without a penalty.

A worked example

Say your total federal tax last year, income tax plus self-employment tax, was $14,000, and your adjusted gross income was under $150,000. To use the safe harbor, you pay $3,500 on each of the four due dates, $14,000 in all.

If this year your business does much better and your tax comes to $20,000, you pay the remaining $6,000 when you file in April, with no underpayment penalty. The trick is to have that $6,000 set aside, which is where a separate tax account earns its keep.

Working out the amount for a first year

In your first profitable year, there's no prior-year business tax to lean on, so you estimate. Form 1040-ES includes a worksheet that walks through it: expected income, deductions, self-employment tax and credits, then divides the result across the four due dates.

A simpler habit, while you learn your numbers, is to set aside a fixed share of every payment you receive into a separate tax account, then pay from that account each quarter. Many self-employed people set aside somewhere between a quarter and a third of profit, adjusting once an accountant has seen a full year. It isn't precise, but it means the money exists when the bill arrives.

If your income is lumpy, such as a big project late in the year, you can use the annualized income method instead of equal installments, which matches payments to when you earned the income. Form 2210 covers it, and it's worth asking your accountant about.

How to pay

The IRS accepts estimated tax payments in several ways:

• Your IRS online account, where you can also see past payments.
• IRS Direct Pay, straight from a bank account, with no registration.
• EFTPS, the Electronic Federal Tax Payment System, which lets you schedule payments in advance. Useful once you have a routine.
• The IRS2Go app or by phone.
• Debit or credit card, through an approved processor that charges a fee.
• By mail, with a payment voucher from Form 1040-ES and a check.

Whichever you use, keep the confirmation. You'll enter the total of your estimated payments on your tax return, and your accountant will ask for the dates and amounts of each one, so a simple list in your books saves time.

Special cases

If you also have a job

If you have a salaried job as well as a side business, you can raise the withholding on your paycheck, using a new Form W-4, to cover the tax on your business income instead of making estimated payments. Withholding is generally treated as paid evenly through the year, which can also help if you realize late that you've underpaid.

S corporation owners

If your LLC has elected S corporation status, tax is withheld from the salary you pay yourself. Your share of the remaining profit, paid as distributions, has no withholding, so you may still need estimated payments to cover it. Our guide to paying yourself from an LLC explains the difference between salary and distributions.

State estimated taxes

Most states with an income tax have their own estimated tax payments, with their own thresholds and sometimes different due dates or percentages. Check your state tax agency's website, and set aside enough for both.

What the penalty is

If you underpay, the IRS charges a penalty based on how much you underpaid and for how long, at an interest-like rate that changes each quarter. It applies even if you're due a refund when you file. The IRS can waive it in limited cases, such as a casualty or disaster, or if you retired after 62 or became disabled during the year and the underpayment had reasonable cause.

In practice, the penalty for a small, short underpayment is modest, and many people find it's the price of a first year's learning. But it's avoidable, and the safe harbor makes avoiding it easy once you have a prior-year return.

Mistakes that lead to penalties

• Assuming the periods are calendar quarters. The second payment covers only April and May and is due June 15, two months after the first.
• Forgetting self-employment tax. Budgeting only for income tax leaves you roughly 15% short on your business profit.
• Missing the 110% rule. After a year with adjusted gross income over $150,000, paying 100% of last year's tax is no longer a safe harbor.
• Spending the tax money. Without a separate account, the money for January tends to disappear in December.
• Forgetting the state. Federal payments don't cover state income tax, which usually has its own schedule.
• Paying nothing in a strong first year. The no-prior-liability exception only works if you truly owed nothing the year before.

A simple routine

1. Open a separate tax savings account, ideally one that earns interest.
2. Every time you're paid, move your chosen percentage into it.
3. Put the four due dates in your calendar, with reminders a week before.
4. On each date, pay a quarter of last year's tax, or your Form 1040-ES estimate in your first year.
5. Keep every confirmation for your tax return.

If you're keeping your books properly, this takes minutes a quarter. Our guide to small business bookkeeping covers the monthly routine that makes the numbers easy to find, and our guide to small business tax deductions covers the expenses that reduce the profit you're taxed on.