Estimated quarterly taxes: who pays and how to work them out

Why estimated tax exists

The US tax system is pay-as-you-go. Employees have tax withheld from each paycheck. Business owners, freelancers and partners usually have nothing withheld, so they pay estimated tax instead: four payments spread through the year that cover income tax and self-employment tax on their profit.

Who has to pay

• Individuals, including sole proprietors, single-member LLC owners, partners and S corporation shareholders, generally must pay if they expect to owe $1,000 or more when they file, after subtracting withholding and refundable credits.
• C corporations, including LLCs taxed as C corporations, must pay if they expect to owe $500 or more.

An S corporation owner who takes a salary through payroll can cover part of the tax through withholding on that salary. The rest, on the profit passed through to them, usually needs estimated payments.

Due dates for 2026

The periods are not equal quarters, which catches people out. When a due date falls on a weekend or legal holiday, it moves to the next business day. Calendar-year C corporations pay on the 15th day of the 4th, 6th, 9th and 12th months: April 15, June 15, September 15 and December 15.

How much to pay

Use a safe harbor

You avoid the underpayment penalty if your withholding and timely estimated payments together cover the smaller of:

• 90% of the tax on this year's return, or
• 100% of the tax on last year's return, provided that return covered a full 12 months. If last year's adjusted gross income was more than $150,000, or $75,000 if married filing separately, the figure is 110%.

The prior-year safe harbor is the simplest method for a growing business. For how much to put aside from each payment, see how much to set aside for taxes. Divide last year's total tax, or 110% of it, by four and pay that each quarter. You may still owe more when you file, but you will not owe a penalty for underpaying.

Or estimate this year's tax

If this year's profit will be lower than last year's, paying 90% of this year's expected tax may mean smaller payments. The Form 1040-ES worksheet walks through the calculation: expected income, deductions, income tax, and self-employment tax on business profit.

If income is uneven

Seasonal businesses can use the annualized income installment method on Form 2210, which matches each payment to the income actually earned up to that point. It takes more work but avoids paying tax on income you have not yet earned.

A quick example

A freelancer's total tax on last year's return was $18,000, and her adjusted gross income was under $150,000. Paying $4,500 on each of the four due dates meets the prior-year safe harbor. If this year goes better and her tax comes to $25,000, she pays the remaining $7,000 when she files, with no underpayment penalty.

How to pay

• IRS Direct Pay: free payments from a US bank account, without registration.
• EFTPS: the Treasury's electronic payment system, free, and used by businesses for payroll and corporate payments.
• Your IRS online account: make and track payments, and see what the IRS has recorded.
• Debit or credit card: through IRS-approved processors, which charge a fee.

Choose "estimated tax" and the correct tax year when you pay, so the payment is applied properly.

The underpayment penalty

If you pay too little or too late, the IRS charges a penalty calculated like interest, at the federal short-term rate plus three percentage points, for each day each instalment was short. It is worked out on Form 2210, and it applies even if you pay the full tax with your return. Paying something late is better than paying nothing, because the penalty stops running on whatever you pay.

The safe harbors, waivers and the annualized method are covered in detail in the underpayment penalty and safe harbors.

Non-residents

A nonresident alien who expects to owe US tax on income not covered by withholding, for example income effectively connected with a US business, uses Form 1040-ES (NR). Whether you have such income is explained in whether foreign-owned US LLCs pay US tax.

State estimated tax

Most states with an income tax have their own estimated tax rules and due dates, often matching the federal ones. Check your state's requirements separately.

This guide is general information. It is not tax or legal advice for your situation.